After a fearful 49 percent plunge in its stock price Thursday, the survival of grocery giant Supervalu grew further in doubt, as Wall Street debated the company's dismemberment.
The parent company of Cub Foods and grocery chains around the country was hit with tough news on all sides on Thursday, July 12: Its bond rating was lowered, analysts downgraded its stock, critics scoffed at its latest turnaround plan and short-sellers led a shocking free-fall.
Shares plummeted $2.60 to $2.69, after the Eden Prairie-based grocer halted its dividend and said it would explore selling some or all parts of the troubled company. Trading volume Thursday was massive, 10 times the typical level.
Supervalu executives insist there's still a future for America's third-largest grocer, and they've unveiled an emergency recovery plan. It prompted one analyst to upgrade the stock Thursday. But other believers were scarce.
"Supervalu could become the next casualty in the troubled supermarket space, as its fundamentals have finally begun to show real signs of distress," wrote Credit Suisse analyst Edward Kelly, adding that the business "may be beyond repair at this point."
Supervalu is one of Minnesota's largest and most venerable companies, with 3,000 employees in the state and 130,000 full-time workers nationwide. Besides Cub Foods in the Twin Cities, it boasts a series of supermarket brands that include Jewel-Osco in Chicago, Albertson's in the western U.S. and Save-A-Lot
In 2006, Supervalu purchased the Albertson's grocery empire, a massive deal that gave it a coast-to-coast presence -- and saddled it with a massive debtload. Then came the recession, strapped consumers and new low-cost competitors, and the mega-deal became an anchor.
To stay afloat, Supervalu for years has been pruning back, selling assets, announcing layoffs and squeezing wherever it could. According to one former worker, even wastebaskets were no longer being emptied in corporate offices.
Fitch, one of three major credit-rating agencies, Thursday downgraded Supervalu's debt from B to CCC, one step above default. Supervalu
Fitch also suggested Supervalu's most likely future will be chopping it apart and selling off the pieces. Its huge debtload and declining market share suggest "a complete sale of the business is unlikely," it said, although private-equity firms are said to be scouting the company.
But to Fitch's analyst, the lucrative parts of Supervalu aren't its traditional supermarkets, which have struggled against low-cost competitors like Wal-Mart, Target, Aldi and Costco. It's the less glamorous segments.
"The hard discount segment (Save-A-Lot) would be an attractive property to the right buyer, and the independent (distribution) business is relatively stable, and could garner some interest," Fitch said.
The Credit Suisse analyst was even more blunt. Except for the Jewel-Osco chain in Chicago, which might interest rival Kroger, "the company's other (supermarket) assets may not have much value as there is a lack of buyers in the market place."
Supervalu CEO Craig Herkert already has said bankruptcy is not an option. But other scenarios have emerged.
On Wednesday's earnings call, JPMorgan analyst Ken Goldman asked, "Is one option to spin off the Albertson's business and throw all that Albertson's debt on to it? ... What would prevent you from saying, 'This is a bad acquisition but it's a sunk cost, let's just cut our losses here'?"
Herkert didn't comment on that idea. As he told employees on Wednesday, he won't be commenting while financial advisers are shopping the company around.
"You can expect over the next several months there will be a lot of rumors and speculation about this process in the media and among financial analysts who follow the company," he wrote in an email to Supervalu employees. "Unfortunately during this period, for legal, business and other reasons we will not be commenting."
Supervalu's woes dragged the entire grocery sector lower Thursday. Partly, that's because of fears that a do-or-die supermarket price war would hurt everyone's margins.
Roundy's, the Wisconsin-based owner of Rainbow, fell 7 percent. Safeway fell 12 percent. Kroger fell 4 percent.
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