Supervalu says deal not dead yet

The review of strategic alternatives remains ongoing at Supervalu despite reports about discussions breaking down with one prospective investor.

Supervalu on Friday morning took the unusual step of announcing that its, "previously announced review of strategic alternatives is proceeding," and that active discussions were ongoing with several parties. The company also noted that nothing may come of the discussions. "There can be no assurance that this process will result in any transaction or any change in the company’s overall structure or its business model."

The announcement followed media reports that discussions with the private equity investment firm Cerberus had stalled. If that is the case it would hardly be surprising considering the dealmaking process can unfold over many months if not years. It took well over a year for ConAgra Foods to come to terms with recent takeover target Ralcorp.

Even with that understanding, Morningstar issued a report cautioning investors to stay away from the stock.

"Supervalu's fundamentals continue to deteriorate, and prospects for an operational turnaround are becoming more difficult as the competitive environment is still intensifying," according to Morningstar.

The firm noted that shares of the company moved higher in late October on speculation that a deal was imminent, but recent reports took the wind out of the sales of that view. Morningstar contends efforts to sell the company have attracted little interest and what interest the company has received is only for specific assets.

"The apparent choices that Supervalu's board faces are an operational turnaround instead of an outright sale; selling off parts of the business themselves; or leaving the breakup task to Cerberus Capital," Morningstar said.

Supervalu’s prospects for an operational turnaround appear very difficult given the competitive climate the company faces with its Save-A-Lot format stores and a dwindling customer base for its wholesale segment that serves independent food retailers. Despite seemingly bleak prospects, Supervalu remains one of the nation’s largest food companies with annual sales of roughly $35 billion and a U.S. store network that consists of 1,099 traditional food stores, 1,341 Save-A-Lot stores and 1,950 independent stores served by the distribution business.