United Natural Foods, Inc. (UNFI), the primary natural and organic foods supplier for Amazon’s Whole Foods, has acquired supermarket chain Supervalu for $2.9 billion, including the assumption of outstanding debt and liabilities. This allows the grocery food wholesaler to expand their clientele and create a diverse customer base.
The grocery distributor offered Supervalu shareholders $32.50 per share in cash, which is a 67 percent premium compared to Supervalu’s closing price on Wednesday. The wholesale grocery chain made a profit of $1.26 billion from the acquisition after subtracting the cost of their accumulated debt and liabilities. During premarket trading, Supervalu’s shares increased 63 percent to $31.85, which is a significant difference from the past year when the grocery chain’s stock was down by 22 percent. Supervalu also experienced a $21 million loss, or 70 cents per share during the first quarter, which might be why the company agreed to the business deal.
On the other hand, UNFI believes that this acquisition will benefit their business and broaden their reach to new clientele. The organization claims that this acquisition is part of their “Build out the Store” growth strategy, which involves expanding their product range and overall consumer reach.
“Combining our leading position in natural and organic foods with SUPERVALU’s presence in fast-turning products makes us the partner of choice for a broader range of customers. Together, we can provide our ‘better for you’ products as well as other high-growth segments, improving customers’ competitive advantages in a dynamic marketplace. These benefits, plus our increased efficiency and productivity, will enable us to create value for our shareholders, enhance opportunities for our suppliers, provide a broader assortment for our customers and create new prospects for our associates over the long term,” said Steve Spinner, UNFI’s chief executive officer and chairman in a release.
According to UNFI, this acquisition will benefit them in a variety of ways which includes expanding their customer base. UNFI claims that Supervalu’s assets will “unlock new opportunities” for the distributor by expanding their overall product portfolio. The organization also hopes this deal will enable cross-selling opportunities because they will now be able to offer high quality non-organic and organic products. Supervalu’s expansive customer base and market reach are also expected to increase UNFI’s efficiencies and effectiveness. UNFI will also acquire Supervalu’s technologies, capacity and systems, therefore growing their supply chain. Additionally, since both Supervalu and UNFI are food suppliers, UNFI claims that they can have cost synergies of over $175 million by year three.
With Supervalu being one of the largest grocery wholesalers and retailers in the US with annual sales of around $14 billion, it is no surprise that UNFI sees significant growth potential in this acquisition. The grocery retailer has a network of 3,437 stores and 23,000 employees which makes it a huge addition to UNFI’s portfolio.
“The combination of UNFI and Supervalu provides a substantial premium and delivers certainty of value to our stockholders, meaningful benefits to our customers, expanded opportunities for our employees, and the ability for us and our vendors to efficiently serve a varied customer base,” said Mark Gross, Supervalu’s chief executive officer in a release. “We have been executing an ambitious strategic transformation for over two years. We believe that this transaction is the best and natural next step for our stockholders, customers and employees. I am very proud of the unwavering commitment and focus of our employees in driving our strategic transformation and serving our customers. I am confident that, together, Supervalu and UNFI will be well positioned to succeed – and to help our customers succeed – in today’s grocery landscape.”