It’s one of the biggest investment stories in the country right now. The Boise-headquartered Albertsons grocery-store chain is finally making its initial public offering of stock after it shelved its original IPO plans five years ago.
The official commencement of the long-awaited public stock sale was announced by Albertsons on June 18. The firm will list its common stock on the New York Stock Exchange under the ticker symbol of ACI. The Wall Street Journal estimated that public trading of Albertsons stock on the NYSE will be underway before June 26. The grocery giant filed its intent to go public when it submitted its Form S-1 to the U.S. Securities and Exchange Commission in early March.
According to Albertsons’ own news release of June 18, the initial public offering of 65,800,000 common stock shares will be sold by some of its stockholders, at an anticipated initial public offering price between $18 and $20 per share. The sale will raise approximately $1.25 billion.
At that price range for common stock, Nasdaq estimated Albertsons would have an enterprise value of approximately $19 billion while the Wall Street Journal estimated a non-defined valuation of “more-than-$10 billion.” At the $19/share midpoint of the proposed offering, investment firm Renaissance Capital calculated Albertsons’ market value at $9.1 billion. These estimates may not be contradictory because professional investors use several different but similarly-labeled metrics to evaluate corporate value, most of which account for stock price, debts, assets and projected revenue in various ways.
Albertsons itself is not selling any shares in the offering and will not receive any of the net proceeds from the IPO. The sale of the shares is by its private owners. As part of the public offering, Albertsons announced that “certain of the selling stockholders expect to grant the underwriters a 30-day option to purchase an aggregate of 9,870,000 shares of the company’s common stock.”
Preferred purchase options and resale of IPO stock is a common practice by underwriters since it is one of the ways they earn money from setting up and administering the IPO. The list of financial institutions underwriting the stock sale is included in Albertson’s June 18 press release.
Albertsons was taken private by a group of private equity firms in 2005 led by Cerberus Capital Management. It previously filed for a $1.6 billion IPO in 2015 but postponed the sale due to a lack of investor confidence brought on by the then-soft market in retail. Albertsons’ owners eventually withdrew the IPO plans in 2018 when they announced they planned to merge with Rite-Aid. Those merger plans failed.
Cerberus is expected to own 31.9% of Albertsons following the IPO, according to the SEC filing paperwork.
There were private equity moves after the March announcement of the IPO plans. Apollo Global Management initiated the purchase of $1.75 billion of Albertsons convertible preferred stock with an expected final closing before the commencement of the IPO.
The investment received a favorable evaluation from the firm: “Albertsons Companies is pleased to work with Apollo and its co-investors,” remarked Vivek Sankaran, Albertsons’ President and CEO, in a May 20 news release. “Apollo knows our industry and business model well, given its significant prior history of successful investments in the grocery sector. We believe the investment led by the Apollo Funds represents a vote of confidence in both our business and our long-term strategy.”
In its prospectus filed with the SEC, Albertsons said same-store sales have grown for eight straight quarters, with a 2.7% sales increase in the third quarter of 2019, up from 1.9% a year earlier. For fiscal 2018, it made a profit of $16.9 billion on sales of $60.5 billion. The company admitted that has a “significant amount of indebtedness” incurred when its owners reunited the old Albertsons chain in 2013 and purchased the Safeway chain in 2015, bringing it under the Albertsons management umbrella. As of Nov. 30, 2019, the firm had a debt of $8.2 billion.
Albertsons is one of the largest food retailers in the United States, with 2,252 stores in 34 states and the District of Columbia. The company operates 20 grocery-store chains including the Albertsons brand itself as well as Safeway, Vons, Pavillions, Randalls, Tom Thumb, Carrs, Jewel-Osco, Acme, Shaw’s, Star Market, United Supermarkets, Market Street and Haggen. According to Dun & Bradstreet, the firm currently has annual gross sales of $62 billion, which is 30 times the 2019 appropriation for Idaho’s public schools or enough money to build, fit out and commission 18 Virginia-class fast-attack submarines.
Due to SEC quiet period restrictions on IPOs, Albertsons was unable to comment on any of Idaho Business Review’s inquiries.