United Natural Foods is buying Supervalu Inc., the parent company of Kirkwood-based Shop ’n Save, for $2.9 billion and planning to divest its retail operations.
United Natural Foods, a distributor of natural and organic foods based in Providence, R.I., offered Supervalu shareholders $32.50 per share in cash, a 67 percent premium over Supervalu’s Wednesday closing price.
United Natural Foods, the primary supplier for ’s Whole Foods Market, said it plans to sell some Supervalu retail assets after the deal.
Supervalu had already been shopping the Shop ’n Save business . United Natural Foods will continue to look for potential buyers.
Steve Spinner, United Natural Foods’ CEO and chairman, said in a call announcing the agreement Thursday that the company would work toward exiting Supervalu’s retail business, which reported $901 million sales in its most recent quarter.
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“We’re not going to be in the retail business, it’s just not what we do,†he said.
Aside from Shop ’n Save, United Natural Foods would also look to sell other grocery chains, including Cub Foods, Hornbacher’s and Shoppers. None of those brands has stores in the St. Louis area.
A timeline of the retail divestitures was not provided. Mike Zechmeister, United Natural Foods’ CFO, said the company would work on developing a plan and share details of that plan later.
“With extremely thin margins at Supervalu and organic growth opportunities hard to come by due to the challenging business environment for its wholesale distribution customers, which are primarily independent food retailers or small retail grocery chains that are challenged the most in the current promotional environment,†said Moody’s Vice President Mickey Chadha, “it makes sense to join forces with (United Natural Foods), which has over 35 percent of its sales to grocery stores that specialize in faster growing natural and organic foods, including Whole Foods.â€
Analysts and industry experts have said a buyer could be hard to come by as Schnuck Markets and Dierbergs — the two most obvious potential buyers — have stores near most Shop ’n Save locations, and large grocers such as Kroger seem hesitant to break into the market.
Supervalu for most of this year has faced pressure from Blackwells Capital LLC, one of its largest shareholders, to split its retail and wholesale units. And in June, Supervalu executives announced a plan to reorganize the company by separating its wholesale and retail operations.
Under that proposal, Supervalu would restructure into a holding company that oversees both units. That would allow Supervalu to maximize its wholesale operations by becoming “the wholesale supplier of choice for grocery retailers across the United States,†said Supervalu President and CEO Mark Gross in a regulatory filing detailing the new structure.
The deal with United Natural Foods is expected to close by the end of the year. Supervalu’s breakup fee if the deal doesn’t finalize is $40.5 million.
Shop ’n Save, which has more than 30 grocery stores in the St. Louis region, has about 3,300 employees locally. Since Minneapolis-based Supervalu announced its intention to sell the grocery chain, at least two former Shop ’n Save locations have found new life under other grocery brands.
Discount grocer Aldi recently committed to moving its Tower Grove South store at 3721 South Grand to a former Shop ’n Save location at 3865 Gravois Avenue. Aldi will take up nearly 27,000 square feet of the vacant grocery store in Gravois Plaza.
And Schnucks announced in early July it would open in the recently closed Maplewood Shop ’n Save space at 7355 Manchester Road. The announcement came roughly a month after Shop ’n Save closed the store.
Reuters and The Associated Press contributed to this report.