Filing shows that Albertsons rejected a higher sale offer

BOISE (AP) — Before agreeing that Albertsons Inc. would be sold to a consortium led by Minnesota-based grocer Supervalu and drugstore chain CVS Corp., Albertsons directors rejected an offer from another party for up to $30 per share, 14 percent higher than the Supervalu deal, according to a report filed with the Securities and Exchange Commission.

In a disclosure filed May 18 as part of a settlement of a shareholder lawsuit, Albertsons said the proposal from an unidentified party was "substantially less firm" than the proposal offered by the Supervalu consortium and ultimately accepted by Albertsons directors Jan. 23.

The rejected proposal would have recapitalized Albertsons and kept the current board and management team for the grocery chain in place, as well as retained its headquarters in Boise, The Idaho Statesman newspaper reported Friday. It would have reduced the fees paid to two Wall Street firms advising the company on sale options and would have prevented Albertsons executives from collecting millions of dollars in severance, including $54 million earmarked for outgoing CEO Larry Johnston.

The complex proposal called for Albertsons to first acquire a smaller, traditional grocery operator affiliated with the proponent in a stock-for-stock transaction, then buy back half of Albertsons outstanding common stock at $27.50 to $30 per share for an estimated cost of $5.5 billion.

The proponent of the deal would then invest $1 billion in exchange for a significant equity position in the company, including the right to acquire 10 percent of Albertsons stock in the event the price of shares doubled from the initial offer price.

Burt Flickenger, a retail analyst and managing director of Strategic Research Group in New York, said the spurned offer was a "pipe deal," allowing the suitor to insert a "pipe into the company" without buying all the outstanding shares. With 50 percent of the shares off the market, the remaining Albertsons shares might increase in value and stockholders might benefit if the new controlling entity improved the chain's weak performance.

"Albertsons has been under-managed for a decade," said Flickenger.

Albertsons would not comment on the rejected proposal, but the report filed with the SEC said the Albertsons board discussed it several times in December before concluding it had substantial risk and little guarantee that shareholders would ultimately realize greater value than the competing proposal offered by the Supervalu consortium.