Albertsons Companies Inc., now the second-biggest supermarket company in the country after its acquisition of Safeway earlier this year, wants to have an initial public offering of stock, according to a filing July 8.
The Boise-based company did not say how many shares it would offer, what they would cost or where those shares would trade. It said it expects to raise $100 million from the offering, though that figure is only an estimate used to calculate a filing fee. Proceeds from the offering will be used to repay debt and for general expenses.
The IPO could be a sign that Albertsons is shifting its strategy and wants to invest in growth, according to Keith Harvey, associate dean for academic programs in the College of Business and Economics at Boise State University. While Albertsons was founded locally in the 1930s, the primary owners now are private equity firm Cerberus, which acquired part of Albertsons in 2006 as SuperValu bought most of its stores. Cerberus then bought all remaining Albertsons stores from SuperValu in 2013.
Harvey said private equity firms like Cerberus typically start out focusing on a business’s current cash flow and paying down debt. Next, they work on reinvesting and growing. He said Albertsons could use money from an IPO to create a capital structure with more equity and less debt.
For grocery shoppers, Harvey said that could mean Albertsons is preparing to take on high-end competitors like Whole Foods and low-end competitors like Wal-Mart.
“They’re in an environment that’s very difficult right now in grocery, being hit on both ends with the organic markets and the discount markets,” Harvey said. He said the Safeway acquisition helped them grow in traditional grocery stores, but there are other areas where they could still expand.
“They probably would like to have the capital in place to recapture some of the market share in both of those places,” he said.
An IPO also brings some costs, including the need to regularly report earnings and company activities, which private companies typically don’t have to do. Those reporting and compliance efforts mean competitors can learn about a public company’s plans. Also, Harvey said, public companies can be focused on hitting analysts’ quarterly projections, which can lead to short-term myopic thinking.
Dave Petso, a chartered financial analyst and owner of Petso Financial Consultants in Boise, called the IPO announcement “awesome,” and part of a long-time comeback for Albertsons since before the SuperValu deal.
“They’re back to where they were in the early 2000s,” he said. He said the IPO shows they’re confident they will find investors.
“It shows the company’s healthy, because you can’t take an unhealthy company public. The market won’t accept that,” Petso said. He said Cerberus has done well with investing in Albertsons.
“This was an incredibly profitable steal from Supervalu. They were magnificent buyers. They have made millions or maybe billions off this,” he said.
Albertsons closed its $8 billion buyout of Safeway in January, drastically increasing the company’s size. It now operates 2,205 stores in 33 states under 18 names. Safeway locations make up 1,247 of those stores. Other names under Safeway operations include Vons, Tom Thumb and Randalls.
The company also operates 456 Albertsons supermarkets in Idaho and 15 other states. Other retail banners include Jewel-Osco, Shaw’s, Acme, United Supermarkets, Pavilions, and Star Markets.
Albertsons employs about 265,000 full- and part-time workers. It had revenue of $27.2 billion in fiscal 2014, but the addition of Safeway results boosts that revenue figure to $57.5 billion, which makes it the second-largest traditional supermarket chain in the U.S. behind Kroger Inc., which has Fred Meyer stores in Idaho.
The IPO filing is for Albertsons Companies, a newly formed company created for the offering. Previously, Cerberus’s original Albertsons acquisition from 2006 and subsequent 2013 acquisition, as well as the 2015 Safeway purchase were formally owned by AB Acquisitions LLC. According to the IPO filing, AB Acquisitions is now part of Albertsons Companies, which will be owned by shareholders as well as Cerberus and other current Albertsons owners.
The Associated Press contributed to this report