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updated: 10/4/2012 1:56 AM

Jewel-Osco parent company Supervalu attracting purchasers

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Bloomberg News

Supervalu Inc., the U.S. grocery chain that owns area Jewel-Osco stores, has attracted interest from billionaire Ronald Burkle and buyout firms KKR & Co. and TPG Capital, said people with knowledge of the matter. Burkle and the private-equity firms are looking at parts of Supervalu rather than the whole, said the people, who asked not to be named as the process is private. Cerberus Capital Management LP also has looked at some of Supervalu's assets, said one person.

Supervalu would prefer a deal for the entire company and has extended its offer deadline past Oct. 15, the people said. The third-largest U.S. grocery-store chain may face difficulty because it has almost a dozen different retail banners, some pharmacies and a distribution business, and few bidders would want to keep all of them, two of the people said.

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Supervalu's shares advanced 1 cent to $2.30 at 9:33 a.m. in New York. They rose as much as 9.2 percent in after-hours trading yesterday after Bloomberg News reported the interest from Burkle and the buyout firms.

The supermarket chain is weighing a new direction after losing more than $2.5 billion over the past two fiscal years, hurt by competition from discounters and costs to run stores. The market value of Supervalu, led by Chief Executive Officer Wayne Sales since his predecessor's ouster two months ago, has dropped by more than three-fourths since the end of 2010.

Spartan Interest

Spartan Stores Inc., a grocery retailer based in Grand Rapids, Michigan, has also shown interest in some of Supervalu's stores in the Midwest, two of the people said. Spartan spokeswoman Jeanne Norcross didn't return two phone calls seeking comment.

Supervalu disclosed in July that it was working with Goldman Sachs Group Inc. and Greenhill & Co. to review options. The Eden Prairie, Minnesota-based company recently allowed parties interested in portions of grocery chain to review the books, signaling Supervalu has become more open to selling off the business in chunks, said two of the people.

TPG director Adam Levine declined to comment, as did Kristi Huller, a spokeswoman for New York-based KKR, and Goldman Sachs spokesman Andrew Williams. An assistant to Burkle didn't return several phone messages. Burkle, who previously owned chains such as Ralphs and Food 4 Less, helped Great Atlantic & Pacific Tea Co. emerge from bankruptcy earlier this year via his Los Angeles-based investment firm Yucaipa Cos.

Supervalu Results

In spite of TPG, KKR and Burkle's interest, Supervalu's losses and declining sales have stalled progress on any kind of offer, one of the people said. The grocer lost more than $1 billion on $36.1 billion in revenue in the year ended Feb. 25. The parties are in early stages of looking at Supervalu's assets, three of the people said.

Supervalu also has debt and pension obligations that may hinder sale efforts, according to an Aug. 24 research report from UBS AG analyst Jason DeRise. The company reported $6 billion in long-term debt and $151 million in cash and equivalents as of June 16. Selling off pieces would saddle the remaining company with a large debt burden, unless the buyer assumed some of the borrowings.

"There is a critical disconnect between what potential buyers would be willing to pay and what Supervalu is able to sell for," DeRise wrote. "This is caused by the very high debt levels at the traditional business."

Cost Cuts

The company has focused on cutting costs, trimming $165 million in expenses last year and planning an additional $325 million in reductions over the next two years. Supervalu named Sales, also chairman of the board, as CEO less than a month after announcing its strategic review, replacing Craig Herkert, who had joined in 2009 from Wal-Mart Stores Inc.

Revenue at Supervalu may drop 4.4 percent to $34.5 billion in the year ending in February, marking the fourth straight year of sales declines, according to analysts' projections compiled by Bloomberg.

Winston & Newell Co., the former parent of Supervalu, was formed more than 80 years ago in Minnesota as a food distributor to grocery stores. The company, which changed its name to Supervalu in 1954, expanded in the Midwest by acquiring regional wholesalers, and by 1988 was supplying more than 3,100 stores in 32 states.

Supervalu's market capitalization topped $500 million as of last week. Save-A-Lot, which prices its food at as much as a 40 percent discount to traditional grocers, may be the most valuable of Supervalu's assets and fetch as much as $1.94 billion, Deborah Weinswig, an analyst at Citigroup Inc., said in an Aug. 17 report. The grocer's distribution business may get more than $800 million from a buyer, she said.

--With assistance from Cristina Alesci in New York. Editors: Julie Alnwick, Kevin Orland

To contact the reporters on this story: David Welch in New York at dwelch12bloomberg.net; Leslie Patton in Chicago at lpatton5bloomberg.net

To contact the editor responsible for this story: Jeffrey McCracken at jmccracken3bloomberg.net

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