Supervalu shares jump on LBO speculation
NEW YORK (AP) — Shares of Supervalu jumped 32 percent on Monday after an analyst upgraded the stock due to the possibility that the grocery store chain might be bought out.
THE SPARK: JPMorgan analyst Carla Casella on Monday upgraded Supervalu to "Neutral" from "Underweight," following news reports the company could be sold. He estimated a likelihood of a deal was about 50 percent. The Wall Street Journal reported on its website late Monday that private equity firm Cerberus Capital Management is preparing a multi-billion bid to acquire the chain and is discussions with lenders to line up financing. The paper quoted unnamed sources who were "familiar with the matter." Officials at Cerberus didn't immediately respond for comment.
THE BIG PICTURE: Supervalu and other grocers have struggled due to tough competition and stricter consumer shopping habits since the recession. The Minneapolis company has replaced its CEO, closed stores and suspended its dividend but so far has not managed to turn around results.
On Thursday the company reported a second quarter loss and said it is reviewing strategic decisions and in active discussions with several parties over a possible deal to sell itself.
On Monday, Supervalu spokesman Michael Siemienas said its review of strategic alternatives is "proceeding."
"The company has received a number of indications of interest and is in active dialogue with several parties," he said via email. "There can be no assurance that this process will result in any transaction or any change in the company's overall structure or its business model."
THE ANALYSIS: "We believe the solid liquidity and now potential interest in the business will support the bonds," Casella wrote in a note. "The downside risk is that the company comes out in the next week or so and announces it is not selling itself or any of its businesses."
SHARE ACTION: Shares rose 98 cents, or almost 45 percent, to close at $3.17, the highest level since July. Prior to Monday the stock had been down about 73 percent since the beginning of the year.