(B)(N) SVU Supervalu Incorporated

Deal Book. Supervalu Incorporated “America’s Neighbourhood Grocer” is on the shelf and selling itself after years of losses and disappointing or difficult sales. The name brand has over 2,500 stores nationwide and there’s a lot at stake. Cerberus Capital Management (apparently self-styled for the three- or multi-headed dog that guards the gates of the Underworld and keeps the Dead in and the Living out) has proposed a leveraged buyout but can’t put together a down payment that they estimate to be in the $4 billion to $5 billion range (Reuters, October 22, 2012, Cerberus working on takeover bid for Supervalu)

The current market value of the company is $600 million down from $2 billion last year and $3 billion the year before. The total assets of $12 billion are about the same as the total liabilities of about $12 billion and the net worth or shareholders equity has tended to be negative since the beginning of the year and it doesn’t seem to be getting any better. Gross sales are of the order of $30 billion a year which is far from peanuts but still not comparable to competing stores such as Wal-Mart and Kroger.

The Risk Price (SF) (please see Exhibit 1, Black Line, a step-function) has been steadily declining from $13 in 2009 to the current $9 and, of course, the company’s stock could not be included in The Perpetual Bond™. In effect, with 214 million common shares outstanding, one needs to have a reason – a business plan not a takeover plan – to pay $2 billion ($9 × 214 million) to buy them all and a plan that we can expect will make them “worth” $9, eventually, which is a lot less than the $4 to $5 billion that we’re expected to squirt into the pockets of the LBO guardians and a different kind of hell for most of the stakeholders.

Exhibit 1: (B)(N) SVU Supervalu Incorporated – Risk Price Chart

Supervalu Incorporated operates as a grocery retailer in the United States. It conducts its operations under three retail food store formats: combination stores, food stores and limited assortment food stores.

(Please Click on the Chart to make it larger if required.)

SUPERVALU® is a leader in the grocery and pharmacy retailing industry serving a wide range of customers in neighbourhoods nationwide with stores ranging from hard discount to traditional and premium grocery formats. SUPERVALU reaches millions of families with the products and services they need through owned, licensed, franchised and affiliated stores with more than a dozen well-known brands and a food and pharmacy supply chain that engages the entire nation from coast to coast.

Postscript

We are The RiskWerk Company and care not a jot for mutual funds, hedge funds, “alternative investments”, the “risk/reward equation” and every other unprovable artifact of  investment lore. We have just one product

The Perpetual Bond™
“Alpha-smart with 100% Capital Safety and 100% Liquidity”
Guaranteed
With No Fees and No Loads on Capital

For more information on RiskWerk, please follow the Tags or Categories attached to this Letter or simply enter Search for additional references to any term that we have used. Related data may be obtained from us for free in a machine readable format by request to RiskWerk@gmail.com.

Disclaimer

Investing in the bond and stock markets has become a highly regulated and litigious industry but despite that, there remains only one effective rule and that is caveat emptor or “buyer beware”. Nothing that we say should be construed by any person as advice or a recommendation to buy, sell, hold or avoid the common stock or bonds of any public company at any time for any purpose. That is the law and we fully support and respect that law and regulation in every jurisdiction without exception and without qualification to the best of our knowledge and ability. We can only tell you what we do and why we do it or have done it and we know nothing at all about the future or the future of stock prices of any company nor why they are what they are, now. The author retains all copyrights to his works in this blog and on this website. The Perpetual Bond®™ is a registered trademark and patented technology of The RiskWerk Company and RiskWerk Limited (“Company”) . The Canada Pension Bond®™ and The Medina Bond®™ are registered trademarks or trademarks of the Company as are the words and phrases “Alpha-smart”, “100% Capital Safety”, “100% Liquidity”, ”price of risk”, “risk price”, and the symbols “(B)”, “(N)” and N*.