Shaw’s and Star Markets are part of proposed $3.3b supermarket sale to private equity firms

Shaw’s and its sister supermarket brand Star Market are part of a larger proposed $3.3 billion deal that could leave the local chains owned by a group of private equity firms that include Cerberus Capital Management, the firm that controls the Steward Hospital Health Care System hospital chain in Boston.

The struggling parent of the Shaw’s and Star Market chain of roughly 170 stores, Supervalu Inc. of Minnesota, said Thursday that it has agreed to sell several of its supermarket chains across the country to an affiliate of Cerberus Capital Management LP.

(New York-based Cerberus was recently in the news when it said it would sell its investment in Freedom Group, the company that makes the rifle that was used in the Connecticut school killings. Since that announcement, Cerberus has hired an investment banker to help in the search for buyers.)

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In a Thursday press release, Supervalu said it has agreed to sell its Albertsons, Acme, Jewel-Osco, Shaw’s and Star Market stores, and related Osco and Sav-on in-store pharmacies to AB Acquisition LLC, a consortium of firms that includes Cerberus, Kimco Realty Corp., Klaff Realty LP, Lubert-Adler Partners, and Schottenstein Real Estate Group, in a transaction valued at $3.3 billion.

Roughly six years ago, the Albertsons chain was split between two companies. One was Supervalu, which operates some stores under the Albertsons nameplate. A separate company, Albertsons LLC, currently operates about 200 stores. Cerberus is an investor in Albertsons LLC.

In November, West Bridgewater-based Shaw’s said it planed to cut 700 jobs, or just under 4 percent of its total employee headcount. Total headcount after the reduction would be about 17,000, a company spokesman said then.

(A story by the Associated Press looked at the proposed transaction from a national perspective as well as its implications for Supervalu.

(According to the AP story, Supervalu is selling five grocery store chains with a total of 877 stores to AB Acquisition, an investor group led by Cerberus. The investor group will acquire the stores for $100 million in cash, and the new company will assume $3.2 billion in existing debt.

(Supervalu has struggled for years to turn around its business. The broader supermarket industry has been facing growing competition from big-box retailers such as Target, drug store chains, and even dollar stores. While bigger chains such as Kroger Co. have adapted by tweaking store formats and building customer loyalty through discount programs and improved offerings, Supervalu has scrambled to keep pace.

(Following the closing of the deal, Supervalu will consist of a food wholesaler, Save-A-Lot, and regional chains Cub, Farm Fresh, Shoppers, Shop ‘n Save, and Hornbacher’s. The company is expected to generate annual revenue of more than $17 billion, down from $35 billion.)