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Supervalu Sees Two-Day Jump Thanks to Buyout Speculation

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Grocery chain Supervalu (NYSE: SVU) saw its biggest two-day rise since April, with analysts predicting a possible takeover in the coming months.

The company, which owns Save-A-Lot, jumped 11% so far this week to as high as $5.15, although it had previously dropped 37% in total during 2012.

Michael Siemienas, head of media relations at Supervalu, gave Benzinga a very stern "We do not comment on rumors or speculation," as one would expect. However, with the company in the midst of its worst drop in sales, its valuation of 3.97 times earnings before interest, taxes, depreciation and amortization could tempt buyout firms, according to Barclays.

On June 11, Barclays analyst Meredith Adler said:

We believe there are a number of factors that make a company attractive to a private equity buyer, including free cash flow potential, transaction size, debt structure, and valuation. … SVU's low valuation and small market capitalization make it the most interesting candidate, in our view, and if a transaction could be financed, our analysis shows a return of 40%+ to the buyer even if a premium of 50% is paid to shareholders, based on our current earnings forecast.

Adler and Benzinga's own analysts are betting on a private equity takeover, if there is a takeover at all, immediately discounting the possibility of a bid from a rival company like Target (NYSE: TGT), Safeway (NYSE: SWY), Kroger (NYSE: KR) or Walmart (NYSE: WMT).

In truth, Safeway and Kroger are not immune to a buyout themselves right now, though Supervalu is considered the more attractive option after turning a full-year profit for the first time in three years.

However, the company's debt maturities, totaling roughly $2.2 billion during 2015 to 2017, could prove to be a stumbling block. "The yields on the company's bonds and the price of its credit default swaps indicate the bond market has real concerns about debt maturities beyond fiscal 2013 and 2014," said Adler. "These maturities could even cause problems in the future for an independent SVU. The outlook is complicated by the company's uncertain turnaround process and the weakening economy."

While retail spending is down, Supervalu has at least proved that it can turn a profit during difficult times. Whether that will be enough to attract some private equity dollars remains to be seen.

Late Tuesday morning, Supervalu was trading at about $4.85, down more than 5%.

Follow me @BCallwood.

Posted-In: KrogerLong Ideas News Short Ideas Rumors M&A Movers Trading Ideas Best of Benzinga


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