SuperValu is now one step closer to spinning off its Save-A-Lot grocery chain into a stand-alone publicly traded company.
The supermarket has completed an amendment of its existing $1.5 billion secured term loan agreement, permitting SuperValu and its subsidiaries to undertake certain conditions that are necessary to complete the spinoff.
Although Save-A-Lot earned $4.6 billion in net sales in fiscal 2016, making up about 26% of Supervalu’s $17.53 billion in total revenue for the year, unloading the brand would enable SuperValu to narrow its focus onto its Farm Fresh grocer chain and Cub Foods wholesaler chain.
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The move would give Save-A-Lot and its more than 1,300 stores the opportunity to function independently as a discount grocer. With more retailers serving health-conscious food offerings, shoppers are more inclined to seek out more affordable supermarkets that can offer these options. Thus, discount, no-frills merchants such as Save-A-Lot and Aldi are exhibiting growth potential within the larger grocery market.
SuperValu initially announced it was exploring a potential Save-A-Lot spinoff in July 2015, with Save-A-Lot filing an IPO with the SEC in January 2016. In December 2015, SuperValu appointed Eric Claus as the new CEO of Save-A-Lot in anticipation of the potential separation.
If Save-A-Lot completes the spin-off, the amendment requires the following conditions:
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Save-A-Lot issues a minimum of $400 million of long-term debt;
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SuperValu’s term loan balance gets reduced by a minimum of $350 million; and
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SuperValu retains a certain minimum equity stake in the spun-off Save-A-Lot company. The supermarket could be required to use net cash proceeds from any future cash-in of that retained equity stake to reduce the $1.5 billion term loan balance.
As part of the expected spinoff, SuperValu indicated in its SEC filing that its shareholders would still own at least 80% of Save-A-Lot upon going public.
Goldman Sachs Bank USA and Barclays acted as joint lead book-runners and joint lead arrangers on the amendment. The maturity date of the term loan is set for March 21, 2019.
