SVU Supervalu Inc. (delisted)

By Heather Haddon 

This article is being republished as part of our daily reproduction of WSJ.com articles that also appeared in the U.S. print edition of The Wall Street Journal (July 27, 2018).

United Natural Foods Inc. is buying food distributor Supervalu Inc. for about $1.3 billion, the latest in the food-distribution sector as it faces low margins and increasing costs.

The acquisition, valued at $2.9 billion including debt, comes with risks for both companies.

The deal would boost United Natural's wholesale capacity as it strains to keep up with a surge in business since Amazon.com Inc.'s acquisition last year Whole Foods, United Natural's top customer. United Natural is the largest distributor of natural goods in the U.S. and Canada. and Supervalu is the biggest publicly traded food wholesaler.

"This combination is what our retailers demand," United Natural Chief Executive Steven Spinner told shareholders on Thursday. United Natural expects the deal to result in roughly $175 million in savings over three years.

United Natural's offer of $32.50 a share represents a 67% premium to Supervalu's closing stock price Wednesday. Supervalu's stock soared 65% to $32.10 on Thursday; United Natural shares fell more than 15%.

Supervalu said it will hold a shareholder vote on the merger and expects it to close at the end of this year.

United Natural would inherit Supervalu's debt and significant pension liabilities. Supervalu is still integrating several recently acquired distributors into its business.

And United Natural, which doesn't run grocery stores, said it would get rid of Supervalu's underperforming supermarket business, requiring it to find buyers or close stores.

That could hearten investors including activist fund Blackwells Capital LLC, which pushed for Supervalu to improve its performance after a long stock slump.

United Natural, based in Providence, R.I., specializes in natural and organic distribution, with more than one-third of its business coming from its long-running contract with Whole Foods. The deal would vastly broaden United Natural's reach into more conventional foods and ethnic markets.

Blackwells Capital has pressured Supervalu for months to shake up its business, nominating an alternative slate of six board members and criticizing pay practices and executive use of the company plane. Shareholders were scheduled to vote on the competing board slate and other Blackwells proposals next month.

Supervalu had said it would shed the underperforming grocery stores. Supervalu also questioned the extent of Blackwells's stake in the company.

A Blackwells spokesman declined to comment.

United Natural's net sales jumped 12% in its last quarter. Sales to the retail channel dominated by Whole Foods were up 24%, and it was the highest quarterly year-over-year growth in net sales to Whole Foods in more than seven years. But gross margins were down, a sign of expenses incurred to manage the sudden growth.

Supervalu on Thursday also said it swung to a loss in its latest quarter. Supervalu reported a first-quarter net loss of $27 million, or 55 cents a share, down from a profit of $9 million, or 30 cents a share, last year.

Sales for the period rose 35% to $4.8 billion, as Supervalu benefited from the addition of $1.3 billion in sales from two wholesalers it acquired.

--Allison Prang contributed to this article.

Write to Heather Haddon at heather.haddon@wsj.com

(END) Dow Jones Newswires

July 27, 2018 02:47 ET (06:47 GMT)

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