June 24, 2020

Breakingviews: Cerberus bags more waiting for Albertsons checkout

by Breakingviews.

Cerberus Capital Management’s investment in grocery store business Albertsons has taken far longer than the typical private-equity errand. Stephen Feinberg’s buyout firm has owned the U.S. chain for 14 years and tried to exit several times. Now the pandemic has helped show it the way out, as it has been a boon for both supermarkets and capital markets. That means Cerberus can get a better deal than was on offer when it last tried to leave the store in January.

Cerberus first bought Albertsons in 2006, when private-equity firms could load up cartfuls of debt. The supermarket chain survived the Great Financial Crisis and then went on a shopping spree that included buying rival Safeway. Cerberus first filed plans for to take Albertsons public in 2015, then tried taking it public by merging with publicly traded pharmacy chain Rite Aid, before returning to the initial public offering aisle at the start of this year.

That got shelved again as Covid-19 spread. But on Friday Albertsons restocked its IPO filing with a plan to sell shares for up to $20 apiece. Its return to the public market could happen as early as this week. At that price, the deal would raise $1.5 billion and mean the grocery chain would be worth roughly $20 billion, including some $8 billion of debt. That would value it at around 7 times last year’s adjusted EBITDA, pretty much in line with rival Kroger.

That’s an improvement on before coronavirus. Last year, Kroger was trading closer to 6 times EBITDA. And its shares have shown resilience: Despite some volatility in the depths of pandemic fears in April, Kroger’s stock has risen more than 10% this year.

Granted, there are risks. Albertsons has warned that Covid-19, which has required it to hire more workers and invest in keeping stores cleaner, could increase costs. But the company has been growing EBITDA, too. This time round, Cerberus looks far more likely to reach the checkout.


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