AL­BERT­SONS HOLDS MERGER TALKS WITH SPROUTS

The Denver Post - - FRONT PAGE - By Ed Ham­mong and Kiel Porter

Al­bert­sons Cos., the gro­cery-chain op­er­a­tor backed by Cer­berus Cap­i­tal Man­age­ment, has held pre­lim­i­nary talks to merge with Sprouts Farm­ers Market Inc., peo­ple with knowl­edge of the mat­ter said.

The dis­cus­sions, which took place in re­cent weeks, are at an early stage and may not lead to a deal, said the peo­ple, who asked not to be named dis­cussing pri­vate de­tails. 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 brands.

Shares in Sprouts closed down 20 cents at $21.82 on Mon­day, valu­ing the com­pany at about $3 bil­lion. They ear­lier rose to $23.07. The Phoenix-based com­pany’s stock climbed 23 per­cent last week.

When Sprouts ac­quired ri­val Sun­flower Farm­ers Market, which was head­quar­tered in Boul­der and Phoenix, in 2012, the com­bined com­pany was val­ued at $2 bil­lion.

Rep­re­sen­ta­tives for Cer­berus and Sprouts didn’t re­spond to re­quests for com­ment. A rep­re­sen­ta­tive for Al­bert­sons de­clined to com­ment.

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, have ex­panded their of­fer­ings of or­ganic food in re­sponse to chang­ing con­sumer tastes in re­cent years. That’s put pres­sure on nat­u­ral gro­cers, in­clud­ing Whole Foods Market, 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 Mon­day, 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. Al­bert­sons agreed in 2014 to ac­quire Safe­way 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 Boise, Ida­hobased 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.

Both Al­bert­sons and Sprouts op­er­ate in Colorado. In the Den­ver area, Al­bert­sons re­cently re­branded all of its stores un­der the Safe­way ban­ner.

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