Some of the world’s largest buyout firms are preparing offers for Supervalu Inc’s Save-A-Lot business, making an outright sale of the U.S. discount grocery chain more likely than a spin-off, according to people familiar with the matter.
Private equity firms Advent International Corp, KKR & Co LP , Clayton, Dubilier & Rice LLC, TPG Capital LP, Onex Corp and Thomas H. Lee Partners LP are participating in an auction for Save-A-Lot, the people said this week.
Some of these firms could make binding offers that will value Save-A-Lot at as much as $1.8 billion, the people said. Supervalu is expected conclude the auction in the coming weeks and decide whether to sell Save-A-Lot outright or spin it off to Supervalu shareholders, the people added.
The sources asked not to be identified because the deliberations are confidential. Supervalu did not immediately respond to a request for comment. Representatives for the private equity firms either declined to comment or did not respond to requests for comment.
Supervalu, based in Eden Prairie, Minnesota, announced its intention to spin 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.
Save-A-Lot operated 463 stores as of the end of February, with 897 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.
The buyout firms are hoping to take advantage of a so-called tax shield resulting from a loss in Supervalu’s $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.
Supervalu has undergone significant management changes since announcing its intent to spin off Save-A-Lot, with Eric Claus, formerly a chief executive officer of supermarket company Great Atlantic & Pacific Tea Company, 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.
Supervalu has been looking to insulate Save-A-Lot from its grocery wholesale and grocery store businesses, which include Shoppers and Shop ‘n Save. These have suffered amid new competition from big-box retailers and convenience stores.
In January, Moody’s Investors Service Inc said a Save-A-Lot sale would be preferable to a spin, because it would allow Supervalu to pay down debt. Supervalu had total debt of $2.3 billion as of June 18. Its current market capitalization is $1.2 billion.
Supervalu said in May it had amended a loan agreement to require Save-A-Lot to raise at least $400 million in debt, $350 million of which would go toward paying down Supervalu’s debt.