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News of Albertsons 'Exploring Options' Boosts Stock

BOISE, Idaho -- The news Friday that Albertsons Inc. is potentially up for sale as a way to "increase shareholder value" itself helped increased shareholder value, by more than 11 percent.

Some industry observers and analysts praised Albertsons' management for making the move.

"I think it's a superb strategic decision by Albertsons' CEO Larry Johnston, and Teresa Beck and Katherine Albertson, who are two key outside board members," retail analyst and consultant Bill Bishop III, of Willard Bishop Consulting, told Progressive Grocer, a sister publication of Convenience Store News.

"Retailers have been selling for a premium this year," Bishop noted. "Most recently, Pathmark in the supermarket sector went for 50 percent more than folks originally projected in the beginning of 2005. There are more buyers of good retail chains than there are sellers, and demand is moving multiples up."

Bishop added that he thought the board could maximize the value of the company's assets by selling Albertsons' various operating units piecemeal, even though as a whole the company still has a strong revenue stream.

"Last year, Albertsons made a very smart strategic decision to sell the New Orleans division to A&P," said Bishop. "Subsequent to that, they sold the Omaha division to Nash Finch, where they saw a virtual tsunami of supercenters in markets where Albertsons had insufficient scale, in Albertsons' view. So what they may decide to do is sell non-core, non-strategic operating divisions, and that can include possibly everything they have in the Southeast and Southwest, and the major states can include Arizona, Texas, and Florida."

Another possible strategy would be to sell its chain drug operations Sav-On and Osco separately, but since CVS and Coutu-Brooks split up the Eckerd drug company last year, there may not be as many buyers willing to pay a premium for chain drugstores.

The main challenge to maximizing value in an Albertson's sale, according to Bishop, is the timing, given that eligible retail buyers are scarce in the market at present. "If the company had been for sale last year instead of this year, Carrefour, the French-based retailer that gives Wal-Mart fits in most international markets, would have been a likely bidder," he said. "But in this case, Carrefour CEO Daniel Bernard just resigned and there is tremendous infighting amongst the major Carrefour shareholders.

"Also, in earlier years, Ahold and possibly even A&P or Safeway would have considered it, but they are selling operating companies now rather than buying them," said Bishop. "So in all likelihood, financial firms or private equity firms would be likely buyers."

Though Carrefour may be out, at least one other overseas retailer might be interested. Speculation from across the Atlantic focused on U.K. retailing giant Tesco as a potential bidder. Analysts pointed out that Tesco has been expanding overseas as it seeks fresh revenue streams. The chain has already proven it can compete with Wal-Mart in Europe.

More broadly, Bishop said the floating of Albertson's on the market is indicative of a sector under siege. "You'll see a continuing contraction of most of the publicly held players in the supermarket sector, while the privately held chains -- such as Giant Eagle, Publix, Wegmans, H-E-B, and Bashas -- continue to grow," Bishop predicted. "The family-owned and -operated chains are going through a real retail renaissance, and will continue to grow, while the publicly held companies continue to sell and continue to contract."
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