Supervalu has finalized the sale of its discount grocery brand Save-A-Lot to an affiliate of private equity firm Onex Corporation for $1.365 billion in cash, earlier than the initially anticipated closure date of Jan. 31, 2017. Upon the closing, Supervalu will continue providing back office services to Save-A-Lot as part of a five-year professional services agreement.
The supermarket confirmed that it has used $750 million of the net proceeds from the sale to prepay a portion of its outstanding term loan balance. The company plans to use the remaining proceeds to further reduce debt, improve its capital structure, contribute to its pension plan and fund corporate and growth initiatives.
“With the successful completion of the Save-A-Lot sale, we are well positioned for the future with a stronger balance sheet, the opportunity to more strategically invest in our business, and the ability to more keenly focus on our core business as a leading grocery wholesaler,” said Mark Gross, President and CEO of Supervalu.
Like discount competitor Dollar General, Save-A-Lot has felt the heat in 2016 from a combination of reduced SNAP benefits in various states and food price deflation. Since Save-A-Lot had accounted for 26% of Supervalu’s $17.5 billion annual revenue, the sale eliminates the added burden of operating a discount retailer. Prior to the sale, Supervalu had initially sought to spin off Save-A-Lot as its own independent brand, to focus further on its Farm Fresh and Cub Foods chains.
Through the sale, Save-A-Lot can develop further as a private company under Onex. As of June 2016, Save-A-Lot operated 472 corporate stores, and it services and supplies another 896 licensee-owned stores across the U.S.
As of the closing, Supervalu is now organized into two primary business segments, Wholesale and Retail.