SUPERVALU Inc. (SVU) Shares Surge On Buyout Rumors

Shares of SUPERVALU Inc. (NYSE: SVU) surged as much as 11% in trading on Friday as rumors about a possible leveraged buyout surfaced. The shares touched their highest level since June before retreating later in the day.

The company runs grocery stores under several banners, which include Acme Markets, Albertsons, Bristol Farms, and Farm Fresh. “It’s another takeover-du-jour story,” said Jud Pyle, chief investment strategist at Options News Network. "The rumor making the rounds is that Supervalu could be the target of a leveraged buyout. Rumor is they could fetch $22.50 a share," he added.

Scott Mushkin, supermarket analyst at Jefferies & Co. (NYSE: JEF), called any chances of such a deal as “unlikely”. According to Mushkin, the company is highly leveraged at the moment, which makes it unsuitable for a leveraged buyout. He added that SUPERVALU has a long term debt of $8 billion, many of its stores require investment, and its prices are above those of its competitors in many markets. Mushkin said that a deal at $22.50 per share would value the company at 6.5x to 7x EBITDA. Currently, banks are financing LBOs at multiples of 6x to 6.5x.

Trading in SUPERVALU was also brisk in the options market, with traders buying March and April call options, which would give them the right to buy the company’s shares at $17.50.

SUPERVALU is planning to remodel its stores, and expand low priced Save-A Lot format. Shares of SUPERVALU were up 5.79% to $17 at 1.56 p.m. on Friday in New York.