Buyout firm Onex in the lead to acquire Save-A-Lot: Reuters

Canadian private equity firm Onex Corp has made the best acquisition offer in an auction for Save-A-Lot, the discount grocery U.S. retail chain that Supervalu Inc (SVU.N) has been considering divesting, according to people familiar with the matter.

An outright sale of Save-A-Lot would deprive Supervalu of one its fastest-growing businesses, but also allow it to focus on improving profit margins in its wholesale distribution food business, which has suffered from deflationary price pressures, lower traffic and customer attrition.

Supervalu is considering a sale of Save-A-Lot to Onex as an alternative to a spin-off and is expected to make a final decision on the future of that business in the next two weeks, the people said on Thursday.

The price that Onex is offering could not be learned, but sources have previously indicated that Save-A-Lot could be valued at as much as US$1.8 billion. The sources requested anonymity because the deliberations are confidential.

Supervalu and Onex did not immediately respond to requests for comment.

Shares of Supervalu were up 8.7 percent at US$4.95 in late morning trading in New York on Thursday, giving the company a market capitalization of US$1.3 billion.

Supervalu, based in Eden Prairie, Minnesota, announced its intention to spin off Save-A-Lot a year ago. Reuters reported in December that Supervalu would consider an outright sale of Save-A-Lot after receiving interest from private equity firms.

The buyout firms that made offers for Save-A-Lot were hoping to take advantage of a so-called tax shield resulting from a loss in Supervalu’s US$3.3 billion sale of supermarket retailer Albertsons Companies Inc and other stores to buyout firm Cerberus Capital Management LP in 2013, sources have said previously.

Save-A-Lot operated 472 stores as of June 18, with 896 additional stores operated by its licensees, mostly in the Southern and Eastern United States, according to the latest regulatory filing on its planned spin-off.

Supervalu has undergone significant management changes since announcing its intent to spin off Save-A-Lot, with Eric Claus, formerly chief executive officer of supermarket company Great Atlantic & Pacific Tea Co, joining as CEO of Save-a-Lot, and Mark Gross, previously a co-president of grocery distributor C&S Wholesale Grocery, joining as CEO of Supervalu.

(Reporting by Lauren Hirsch and Greg Roumeliotis in New York; Editing by Lisa Von Ahn and Matthew Lewis)

(This story has been edited by Kirk Falconer, editor of PE Hub Canada)

Photo courtesy of Save-A-Lot