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Originally published January 10, 2013 at 6:46 PM | Page modified January 10, 2013 at 6:53 PM

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Supervalu to sell Albertson's and four other supermarket chains

Supervalu is selling off five of its grocery chains to an investor group led by Cerberus Capital Management after years of being squeezed by intensifying competition.

The Associated Press

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NEW YORK — Supervalu is selling off five of its grocery chains, including Albertson’s and Jewel-Osco, after years of being squeezed by intensifying competition.

The nation’s No. 3 traditional supermarket operator said Thursday that the sale of 877 stores to an investor group led by Cerberus Capital Management will also include Acme, Shaw’s and Star Market. The group already owns about 200 Albertson’s in the South and Southwest.

Following the sale, Minnesota-based Supervalu will focus on its Save-A-Lot discount stores, as well as its smaller regional chains Cub, Farm Fresh, Shoppers, Shop ‘n Save and Hornbacher’s. It also will keep its wholesale business that distributes groceries to stores.

The investor group will pay $100 million in cash for the stores, and the new company will assume $3.2 billion in existing debt. Cerberus also will offer to buy up to 30 percent of the remaining Supervalu for $4 a share after the deal closes.

Supervalu has struggled for years. The broader supermarket industry has been facing growing competition from big-box retailers such as Target, drugstore chains and dollar stores. While bigger chains such as Kroger have adapted by tweaking store formats and improving discount programs and product offerings, Supervalu has scrambled to keep pace.

This summer, Supervalu fired its CEO and tapped Chairman Wayne Sales to lead a turnaround. The company said at the time that it was reviewing its options, such as putting itself up for sale. In the meantime, it has closed stores and cut jobs as part of an effort to reduce costs. Those efforts to fix its business will continue after the sale of its grocery chains is complete, the company said. Sam Duncan, who most recently was CEO of OfficeMax, will replace Sales as head of Supervalu after the deal closes.

On Thursday, Supervalu also reported a profit of $16 million, or 8 cents a share, for the third quarter. The results were boosted by a gain related to a settlement with credit- card companies. A year ago, the company lost $750 million, or $3.54 a share.

However, total revenue for the period declined 5 percent to $7.9 billion. Sales at locations open at least a year fell 4.5 percent, and 4.1 percent at Save-A-Lot. Its profit margins also fell, in part because the company said it boosted promotions and cut prices for shoppers.

The deal with Cerberus effectively undoes the $12 billion megadeal Supervalu did in 2006 when it bought most of Albertsons. With that transaction, Supervalu gained 569 Albertsons stores in Southern California, Las Vegas and the mountain west. Albertson’s became its biggest chain. Under the megadeal, the Cerberus group bought 655 of Albertson’s underperforming stores, eventually selling off more than 400 of them. There are now 10 Albertson’s stores in the Puget Sound area.

Also as part of the 2006 deal, Supervalu acquired Jewel, metro Chicago’s biggest supermarket operator, and Acme and Shaw’s/Star Markets, big players in Philadelphia and New England respectively. But the deal saddled Supervalu with a big debt load.

As the economy deteriorated after the 2008 recession and as competition in the grocery world intensified, Supervalu increasingly fell behind, losing market share. With its large debt, it lacked the ability to swiftly cut prices and invest in its stores as much as was needed.

Bob Miller, who heads the Albertson’s already owned by the Cerberus-led investment group, said the performance at the newly acquired Albertson’s could be improved.

“In 2006, we acquired a set of stores that lacked investment and were in tough shape,” he said, noting that those stores have grown into a “solid regional supermarket chain with growing sales.”

A representative for the buyers noted that the transaction is still subject to approvals and declined to say whether any job cuts were planned for the newly acquired Albertson’s, or whether the other chains would keep their names.

Supervalu’s shares rose 14 percent to $3.47 Thursday.

Information from the Minneapolis Star Tribune is included in this report.

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