The last of the nine stops on the Upper Midwest tour is back in the Twin Cities, with the #2 local corporate soap opera, Supervalu (SVU). #1 is Best Buy.
SVU has never been the same since it stepped up to the plate in 2006 to buy most of Albertsons, in what it felt was a super value of its own. The panels in the chart from top to bottom:
*The stock did well early in this period and spiked hard in the wake of the deal. It was up almost 200% before reality set in. It has fallen 90% since then, wiping out all of that gain and much, much more.
*The firm’s debt-to-assets ratio had been steadily declining before the acquisition and has moved higher ever since.
*These Albertsons bonds were assumed by SVU. They were downgraded on the acquisition, widening the spread, and then gapped out for a time during the financial crisis. They really deteriorated after that, as ratings continued to be dropped (now Caa1 at Moody’s, B- at S&P, and CCC at Fitch). The recent improvement in the spread comes from the proposed deal to sell many of the SVU operations to Cerberus and others.
*Same store sales have been persistently negative for five years. Not only has there been brutal price competition with well-capitalized firms like Wal-Mart and Target, but the debt load has restricted SVU’s ability to invest in the stores.
For the period shown, compensation for the CEOs of the firm was close to $100 million total, earning it boos from shareholders, governance watchers, and the media.
This company is another reminder of what all the studies of acquisitions show: Many deals that are pronounced as transformative by corporate managers (and their investment bankers) are not super values but value traps. (Chart: Bloomberg terminal.)