Supervalu has made recent moves to shake up its organization. Locally, Farm Fresh Food & Pharmacy, the Virginia Beach, VA-based division of Supervalu, will be shifting primary merchandising responsibilities to its sister supermarket organization, Shoppers Food & Pharmacy, based in Bowie, MD. And, just before presstime, the Eden Prairie, MN based wholesaler-distributor-retailer announced its intention to merge with Commerce, CA based Unified Grocers in a $375 million deal.
At Farm Fresh, 21 merchandising positions will be eliminated at and those duties will be absorbed by current Shoppers’ merchandisers. The move reportedly will be effective on June 23. A Supervalu spokesman said that Farm Fresh’s current headquarters at 833 Seahawk Circle will remain open and that 40 associates involved in operations, loss prevention, IT, human resources and food safety will remain based out of that office. Additionally, 19 people will continue to work at the division’s central floral warehouse, also based in Virginia Beach. He added that Shoppers will be adding some new jobs to support its expanded organization.
As a part of this realignment, former Farm Fresh president Micky Nye now becomes regional VP of operations for an enlarged Shoppers division. She will report to Bob Gleeson, who will remain president of Shoppers.
The expanded Shoppers structure will now include 51 Shoppers Food & Pharmacy stores, 40 Farm Fresh Supermarkets and 22 Shop ‘n Save stores, which were acquired last year from Food Lion as a part of the government-mandated divestiture of more than 80 Ahold Delhaize owned units.
To several industry observers, the downsizing of Farm Fresh was not surprising given the fact that sales and market share have been shrinking for the last five years. Moreover, no new stores have opened during that period and the real estate pipeline for new stores and major remodeling has been negligible at Farm Fresh over the past decade.
With new CEO Mark Gross focusing on SVU’s core wholesale business, the recent sale of its Save-A-Lot discount unit to Canadian private equity firm Onex Corp., industry speculation has been strong that the company is also looking to sell its more than 220 corporate stores. Now comes word that Supervalu will be merging with Unified Grocers, a retailer-owned wholesale grocery distributor that supplies independent retailers throughout the western United States. The transaction is valued at approximately $375 million, comprised of approximately $114 million in cash for 100 percent of the outstanding stock of Unified Grocers plus the assumption and pay-off of Unified Grocers’ net debt at closing (approximately $261 million as of April 1, 2017).
Together, Supervalu and Unified operate 24 distribution centers supplying customers in 46 states and serve a combined customer base of more than 3,000 stores. In a release, the company said combined organization will be uniquely positioned to efficiently serve a broad range of independent customers and offer a diverse array of value added services, helping customers compete in an increasingly demanding grocery environment. The acquisition also provides new growth opportunities across multiple geographies, including the expansion of Unified’s Market Centre division, a growing business providing specialty and ethnic products to independent customers.
“We’re thrilled at the opportunity to bring together these two great organizations,” said Gross. “By acquiring the Unified business, including gaining a wealth of expertise and talent, we will become a stronger and more efficient organization. The transaction will enhance our ability to help our customers better compete in the evolving grocery industry. We’re also excited to serve Unified’s dynamic retailer base. Unified’s Members and customers operate some of the country’s most exciting and progressive Hispanic and multiple other ethnic formats, specialty, gourmet, natural/organic, price impact and traditional stores. They complement our existing customer base and we look forward to facilitating collaboration and innovation across such an impressive collection of creative merchants.”
Gross continued, “We appreciate the experience, intelligence and dedication of the Unified team, and look forward to welcoming Unified associates to SUPERVALU and supporting them as we continue the important work of contributing to the growth and success of our customer network and helping to deliver value to our stockholders. We will make a great team together.”
“We believe this transaction will benefit the Members and customers of Unified Grocers as they look for new and innovative ways to serve the communities in which they operate,” said Bob Ling, Unified Grocers’ president and CEO. “Supervalu and Unified share a common vision of providing best-in-class services and products to the independent grocer. The cultural fit between SUPERVALU and Unified well positions the combined company to pursue a shared dedication and commitment to growth and innovation, providing increased value to customers.”
The transaction, which was unanimously approved by each company’s board of directors, is currently expected to close in mid-to-late summer 2017, subject to approval by Unified’s shareholders and other customary closing conditions. Following completion of the merger, Unified Grocers will be a wholly-owned subsidiary of SUPERVALU.
Following the completion of the transaction, Supervalu, with its headquarters in Eden Prairie, MN, will maintain an important and visible presence in Commerce, CA, Unified’s headquarters, and throughout the West Coast, including management and employees of the combined company.
Supervalu said it expects that by the end of the third year of operations after the completion of the transaction, the combined business will achieve a run rate of at least $60 million in cost synergies. These synergies will be primarily derived from utilizing the scale and expertise of the combined company as well as consolidation of select back office functions. To achieve these synergies, SUPERVALU expects to incur transition and integration costs of up to $60 million within the first two years following the completion of the transaction. The transaction is expected to be accretive to earnings per share, excluding the transition and integration costs as well as potential purchase accounting adjustments, in the first full fiscal year following closing which begins on February 25, 2018.
RBC Capital Markets, LLC acted as Supervalu’s financial advisor and Faegre Baker Daniels LLP and Cleary Gottlieb Steen & Hamilton LLP acted as Supervalu’s legal counsel. Moelis & Company LLC acted as financial advisor to Unified Grocers and Sullivan & Cromwell LLP acted as Unified’s legal counsel.
Supervalu is one of the largest grocery wholesalers and retailers in the U.S. with annual sales of approximately $13 billion. serving customers across the United States through a network of 2,067 stores composed of 1,850 stores operated by wholesale customers serviced primarily by the company’s food distribution business, 195 traditional retail grocery stores operated under five retail banners and 22 stores under the Shop ‘N Save name in Maryland, Pennsylvania, Virginia, and West Virginia (store counts as of December 3, 2016).
Founded in 1922, Unified Grocers is a retailer-owned wholesale grocery distributor that supplies independent retailers throughout the western United States. Unified and its subsidiaries offer independent retailers all the resources they need to compete in the supermarket industry. Unified Grocers has annual sales of approximately $3.8 billion and serves its members and customers through six distribution centers, as well as Market Centre, a dedicated specialty, natural and ethnic business. Unified owns approximately 3 million square feet of real estate.
