Two months ago, all bets were on Albertsons to acquire Golub Corp. (Price Chopper) the 84-year-old regional grocery chain based in Schenectady, NY. Now it appears that deal is off as several financial sources have told us that the Boise, ID-based chain has withdrawn its interest to buy Price Chopper, primarily because it wants to concentrate on launching its effort to go public, which was first announced in July 2015.
Price Chopper, which shook up its senior management team a year ago and has acknowledged that it would explore opportunities to enhance its capital position to improve its store operations and convert more units to its upscale Market 32 format, took an even more forward leap when it hired New York investment bank Sagent Advisors to issue a prospectus relating to those opportunities.
During the past six months, multiple financial sources told us that interest in the approximately 135-stores chain was far from robust with Albertsons emerging as perhaps the only bidder to acquire the whole company (reportedly minus real estate) for about $1 billion. Part of the challenge in acquiring the market leader in the Capital Region of New York (for any buyer) would reportedly be to absorb an approximate $300 million underfunding in its pension plan.
However, after speculation began to increase last fall that Albertsons was the leading contender to acquire Price Chopper, Reuters announced in late December that a deal was close between the two parties. Through our Wall Street sources, we also confirmed that a deal was close.
However, we were told that, just before 2016 ended, Albertsons elected not to pursue the Price Chopper purchase, opting instead to prioritize its effort to take the company public, something it first announced 18 months ago.
One of our financial sources summarized the situation from his perspective: “The Price Chopper situation poses a moderate level of risk to any interested buyer. They are losing market share in most areas, the performance of its Market 32 conversions has been below our sales projections and any buyer would have to sink substantial capital into improving stores and infrastructure. As for Albertsons, launching its IPO has always been a priority since it acquired Safeway two years ago. Even though the retail food sector remains somewhat depressed, the overall market is very healthy now. Why not strike while the iron is hot?”
When Albertsons filed its initial S-1 SEC form, it said it would attempt to raise capital to repay debt and create enough cap-ex to improve operations and perhaps fund other acquisition opportunities (Albertsons said it would like to reach $100 billion in retail sales by 2020). The second largest pure-play supermarket operator in the country (annual sales of approximately $58 billion) is primarily owned by private equity firm Cerberus Capital Management which has been trying to decrease its equity in its two largest retail/wholesale food investments – Albertsons and Supervalu.
It was believed that Albertsons might launch as early in Q4 in 2015, but a poorly received Wal-Mart Investor Day in October 2015 helped depress the entire grocery sector. The Boise-based retailer, however, posted an amended S-1 filing in November 2015 stating that it would resume its attempts to seek a public offering, while also noting the “volatility” of the current financial markets. During the next 14 months, even though the sector has improved a bit, deflation, overstoring and the increased threat of online sales continue to challenge most food retailers.
Now the window to “go public” seems to be more open with Wall Street rallying behind the announcement of Donald Trump’s presidency, as the Dow Jones Industrial Average has increased nearly 2,000 points to a near all-time high of 19,841 on January 17.