MINNEAPOLIS _ Supervalu said Monday that it sold Save-A-Lot, its discount supermarket chain, to Onex Corp., a Toronto investment group, for $1.37 billion.
Supervalu, headquartered in suburban Minneapolis, has for about a year been trying to split off or sell the chain of 1,370 stores. The move leaves the company as primarily a food wholesaler with a division of mainline grocery stores that operates under various names in different cities, including Cub Foods in the Midwest.
In July 2015 then-CEO Sam Duncan announced that the company planned to spin off Save-A-Lot so it could focus on its operations and growth. Later in the year, its plans shifted to consider an outright sale.
"Today's announcement is the result of a thorough process to maximize the value of the Save-A-Lot business and best position Supervalu for future success," said Jerry Storch, Supervalu's chairman.
Save-A-Lot is the discount grocery chain's fastest growing segment, reaching more than 5 million shoppers a week. It represents 26 percent of the company's revenue.
Supervalu plans to use $750 million of the sale's proceeds to prepay a term loan. The remaining amount will be used to further reduce debt and improve capital structure, according to the company's statement. Supervalu has suffered recently from deflationary food prices, lower traffic and a loss of customers. The sale allows the company to improve profit margins as its higher-margin wholesale business will become a greater portion of its overall financial mix.
The sale also includes a professional services agreement in which Supervalu will provide Save-A-Lot with support for day-to-day operations such as cloud services, merchandising technology, payroll, finance, and other services.
David Livingston, a supermarket analyst in suburban Milwaukee, thinks the company got a good price for Save-A-Lot, considering the competitive marketplace for discount grocers.
"Save-A-Lot's are the same size as Aldi but with half the sales," he said. Now that Lidl (another discount supermarket) is coming from Germany, it will be another big competitor."
Analyst Ajay Jain of Pivotal Research Group in New York thought Save-A-Lot could fetch as much as $1.8 billion, but sales in the last four quarters declined between 1.4 percent to 3.4 percent. "We are not entirely surprised that the sale proceeds were lower than expected," he said in a research note.
Supervalu has annual sales of $18 billion with nearly 2,000 stores, including Cub Foods, after the Save-A-Lot sale.
Supervalu shares were up 6 percent in midday trading to $5.30. It has closed as high as about $7 and as low as about $4 in the last 12 months. The sale is expected to close by the end of January.
