For the third time in less than five years, Albertsons, the second-largest pure-play supermarket chain in the country, is preparing to launch a public offering. That’s according to The Wall Street Journal and also confirmed by people inside the Boise, ID-based organization.
The story notes that the company, which is primarily controlled by private equity firm Cerberus Capital Management, is seeking to tap into a currently strong stock market to exit its control of Albertsons which began in 2006 after the retailer acquired about 600 stores in a breakup of the larger old Albertsons organization. According to a source in the Journal report, “Cerberus is resurrecting IPO discussions in hopes of capitalizing on the grocer’s improved performance, strong markets and positive economic indicators.”
According to its reporting, the Journal also reported that Albertsons expects to decide in the “coming weeks” whether to proceed with an IPO that could value the 2,260-store retailer at approximately $19 billion. Kroger, the nation’s largest pure-play grocer, amassed $121 billion in sales last year. Its current market value is about $23 billion. Both chains lag far behind Walmart (which is classified as a mass merchant) in annual food and drug revenue.
Part of the reason for the chain’s optimism is its recent financial performance.
The company posted a 2.7 percent increase in identical store sales when it reported third-quarter earnings on January 7. That marked the eighth consecutive quarter that the retailer achieved comp store increases (it was also the highest ID sales jump in three years). Moreover, e-commerce revenue (from online grocery delivery and pickup sales) rose 40 percent.
And perhaps more importantly for the long-term is that Albertsons has significantly decreased its debt over the past 12 months. As of November, Albertsons’ debt was $8.34 billion compared to $10.52 billion a year earlier. The company’s annual sales (as of February 2019) were about $61 billion.
“Our identical sales momentum continued in the third quarter, as our core business continues to deliver strong growth. We are focused on providing our customers with an easy shopping experience, exciting merchandise and friendly customer service in our omnichannel shopping environment and creating deep and lasting customer relationships. Our productivity and cost reduction initiatives are also beginning to take shape, which we intend to use to fund strategic growth investments, offset cost inflation and support earnings growth,” said CEO Vivek Sankaran in a statement following the sales and earnings announcement. Sankaran, the former PepsiCo executive, was named Albertsons’ chief executive in April 2019 following the retirement of Jim Donald, who is now co-chairman.
Insiders have told us that the potential IPO is being led by Cerberus which has been looking for an exit strategy since shortly after Albertsons acquired Safeway in 2015 for $9.4 billion. The New York-based investment firm first became involved with the large merchant in 2006 when it acquired about 600 Albertsons stores when the original Albertsons chain was broken up into three pieces (the other two pieces were sold to Supervalu for $17.4 billion and CVS which acquired 700 freestanding drug chains for $2.9 billion).
In 2013, after Supervalu failed miserably at retail, Albertsons acquired those 877 supermarkets. Two years later, the company made its boldest move, purchasing Safeway (a larger organization).
Within months of the Safeway deal, Cerberus and other investors attempted their first IPO. The beefed-up merchant sought to raise as much as $1.6 billion by selling approximately 65 million shares at an estimated opening price of $23-$26 per share. That effort failed with Albertsons citing lukewarm market conditions affecting the retail food sector.
In 2018, Cerberus sought a different path into the public markets. It agreed to merge with beleaguered drug chain Rite Aid in a deal valued at $24 billion. A few days before a shareholder vote was scheduled, both retailers canceled the agreement, implying that there was not enough Rite Aid shareholder support to authorize the merger.
Two financial sources predicted that Albertsons would begin a “road show” sometime next month to sell its new IPO proposal to the financial community with the possibility that a more specific launch date could be announced by March.
Currently, Albertsons employs about 270,000 associates and operates in 34 states. It has a strong presence in the Northeast where its Shaw’s (New England), Acme (Delaware Valley and Metro New York) and Safeway (Baltimore-Washington) banners have dominant market shares.