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Albertsons Believed to Weigh Merger With Sprouts

Phase 2

Bloomberg.com reported that Idaho-based Albertsons Cos., the grocery-chain operator backed by Cerberus Capital Management, has held preliminary talks to merge with Arizona-based Sprouts Farmers Market Inc.

The discussions, which took place in recent weeks, are at an early stage and may not lead to a deal, said  sources who asked not to be named. The talks have involved a plan to take organic grocer Sprouts private and add it to Albertsons’ portfolio, which includes eponymous grocery stores and the Safeway store brand.

Representatives for Cerberus and Sprouts did not respond to requests for comment. A representative for Albertsons declined to comment, according to Bloomberg.com.

Grocery stores have been battered by food deflation over the last year, forcing them to compete more aggressively over prices. The battle has weighed on Kroger Co., the largest U.S. grocery chain. The company posted negative same-store sales, excluding fuel, for the first time in more than a decade in the fourth quarter.

Conventional grocers, including Albertsons, Kroger and Wal-Mart Stores Inc., have expanded their offerings of organic food in response to changing consumer tastes in recent years. That has put pressure on natural grocers, including Whole Foods Market Inc., to cut prices to better compete with the mainstream retailers.

Sprouts could fetch about $26 a share in a deal, Jefferies Group analyst Christopher Mandeville wrote in a note to clients in March, which is an 18 percent premium to its last closing price. A sale may attract multiple suitors and lead to a competitive bidding process that could potentially push valuation higher, he wrote. 

In September, Amin Maredia, Sprouts’ chief executive officer, said deep price cuts driven by deflation were “not sustainable” and that his stores had been “exposed a little bit” by lower prices at large conventional stores.

Cerberus first invested in Albertsons in 2006, then bought another group of stores in 2013 from SuperValu Inc. Albertsons agreed in 2014 to acquire Safeway Inc. in a deal valued at about $9.2 billion, which was completed the following year.

In 2015, Cerberus began to prepare for an initial public offering of Albertsons, which now operates more than 2,200 stores, but delayed plans amid unfavorable market conditions.

New York-based Cerberus, led by billionaire Steve Feinberg, manages more than $30 billion in private equity holdings, distressed debt, other credit assets and real estate.