Supervalu Inc. (NYSE: SVU) agreed to sell its Save-A-Lot grocery business to Canada’s Onex Corp. (TSE: OCX) for $1.37 billion in cash, offloading a discount chain at a time of heavy price competition in the U.S.
As part of the deal, Supervalu will provide services such as payroll and merchandising technology to Save-A-Lot for five years, the Minneapolis-based company said in a statement. The transaction is slated to be completed by Jan. 31.
The deal is part of a broader shake-up in the U.S. grocery industry, with major players consolidating and scores of supermarkets changing hands. Royal Ahold NV agreed last year to acquire Delhaize Group, combining the Stop & Shop and Food Lion chains. And Kroger Co.(NYSE: KR), the largest U.S. grocery chain, has been gobbling up smaller competitors. Albertsons Co., meanwhile, postponed plans in October 2015 for an initial public offering, saying the market was too volatile. In other related deals, Apollo Global Management LLC (NYSE: APO) bought the Fresh Market and Haggen added 146 stores on the west coast.
St. Louis-based Save-A-Lot operates about 1,370 hard-discount grocery stores -- no-frills locations that focus on price. The broader industry has become more cut-throat over the past year, with a bout of food deflation putting pressure on grocery chains.
Supervalu plans to use the proceeds to prepay at least $750 million against its term loan balance, to further reduce debt and improve its capital structure, as well as to fund growth initiatives, it said.
The Save-A-Lot sale “provides us with a stronger balance sheet that will allow us to further build on our core strengths and growth opportunities,” Supervalu chief executive officer Mark Gross said in the statement. Onex, a private equity firm based in Toronto, has about $23 billion in assets under management.
Barclays Capital Inc. and Greenhill & Co. (NYSE: GHL) acted as financial advisers to Supervalu, and Wachtell Lipton Rosen & Katz is its legal adviser.