Yes, I admit to full culpability for thinking that the deal was done when Albertson’s execs closed the doors with an investor-led buyout group this last weekend.
Wrong, wrong, wrong. Self-administered dope slap complete, we move right along:
Here’s The New York Times’s report of last night about the squelching of the deal.
If you’re an auditory kind of soul, take a listen to the Marketplace Radio report here. Good bit of extra analysis there, too.
Since the good option (no sale, no bankruptcy, no changes whatsoever to the company) is not an option, we have now to look at several less-than-palatable options for the company, several of which are hinted at by the Times.
Here’s why Albertson’s wants out: They see the writing on the wall, and so does the Food Marketing Institute. Grocery stores like Albertson’s are simply getting out-done by Wal-Mart.
No surprise there.
Another problem might be Albertson’s lurch to the middle, or upper-middle, class. Here in Boise you can get a better deal at WinnCo, and if you want your chi-chi high-end luxury items, you head to the Boise Co-Op. Once you figure out how to get around Albertson’s, you may not be so eager to return.
So Albertson’s saw its opportunity: let’s make ourselves useful to the companies trying (and doing a better job) to scrap it out with Wal-Mart. Let’s make our 2,300 stores in 30 states look like just the sort of extra ammo they need to compete. If you can’t beat ‘em, join ‘em. Of course, in the world of business, that means a sale, not a merger.
Where does that leave Albertson’s employees? As has been made clear in other reports, a sale of Albertson’s to an existing grocery retailer would be bad for the Boise HQ. The buyer wouldn’t need to duplicate the back-office ops (and the salaries they require) here in Boise. So, bad news.
What about Albertson’s stores all over the country? As has been hinted at by the New York Times in interviews with anonymous sources:
“Now, Albertson’s is planning to consider several alternatives, said these people, who did not want to be identified because of the continuing discussions. The board may decide to sell some underperforming stores and its drugstore business, these people added. The company could use the proceeds to recapitalize.”
Consider the buyers we just lost: one of the consortium members was Kimco Realty Corporation, which manages and operates shopping centers and supermarket properties. A natural buyer, yes. But consider that they’re not a grocery company, they just focus on shopping real estate. So they’re not wedded to the Albertson’s concept or its attendant employees and policies. So that’s as good as limbo for employees.
Consider the local political angle, as explored by veteran analyst Randy Stapilus. He’s thinking the sale of Albertson’s, and the incentives the company has already reaped from the Idaho Legislature and Gov. Dirk Kempthorne will cause some shift of allegience in this year’s session. Take the full read here at the Ridenbaugh Press site.
So, the $64 question: what made them walk away? Usually, it’s money. They may have been doing their due diligence on Albertson’s holdings and found them wanting. Maybe there’s problems with labor contracts ( some stores are unionized), or delivery-supply chains, or they may not have been able to agree on the right pieces of the pie. We may never know. Time is of the essence here too, and it’s practically Christmas here. Banks, lawyers and other pieces of the dealmaking engines are all getting a little bit short-handed as we near the holiday weekend.
We’ll keep you posted.