Will Supervalu’s Leadership be Ousted Next Month?

Remember how leadership of Buffalo Wild Wings was ousted last year by one investment firm before Arby’s purchased the restaurant chain? The same may occur with Supervalu this fall. The battle over who will lead the company after its Aug. 16 shareholder meeting intensified this morning as current leadership and its opponent sent mailings to the company’s shareholders.

In one corner of this boardroom boxing match is opponent Blackwells Capital LLC, an alternative investment management firm with an approximate 7.73% ownership interest in Supervalu. It says current leadership is doing a poor job of running Supervalu and protecting its overall value.

In the other corner is existing leadership, which says Blackwells is just out to obtain a quick financial gain at the cost of harming Supervalu’s value longer term.

Opponent’s Viewpoint: Here are some excerpts from Blackwells’ news release and letter to shareholders:

“Blackwells has attempted to actively engage with the current Board and management in good faith and offered solutions and skills that would help stem the constant decline at Supervalu. Each time, our efforts have been rejected, misrepresented, or, in our view, coopted incompetently. The current Board even refuses to sit down, face-to-face, with our highly qualified, independent nominees, who offer decades’ more relevant experience than the current directors,” said Jason Aintabi, Managing Partner at Blackwells Capital, in a news release this morning.

“To protect the investment of all shareholders and help Supervalu achieve its full potential, Blackwells has recruited and nominated six extremely talented professionals to the Company’s Board. With their extensive industry and public board experience, we are confident these nominees will better set Supervalu’s future course and more effectively oversee it.”

The letter to shareholders includes the following:

“Over the last ten years, Supervalu has lost more than $5 billion of shareholder value, with its stock declining more than 90%. During those ten years – and the tenure of five different CEOs – the Company has alternated strategies, including several complete reversals in strategy, but has yet to find a winning formula.

“In 2016 and 2017, the current Board and management team claimed to have implemented yet another sure-fire strategy and turnaround plan, encapsulated by the less than inspiring, three-prong statement to “retain existing customers,” “sell more to all customers” and “serve more customers.” Unsurprisingly, the results bear the same discouraging hallmarks of the past: In Fiscal Year 2018, Supervalu’s stock fell a further 50%.

“In February 2018, we released a detailed strategic plan for the Company. While the mere prospect of our value-creating plan being implemented has led the stock to rally by more than 40%, we do not believe it is wise to entrust the future of Supervalu to the same individuals who have failed for so long to create long-term shareholder value…Supervalu’s notable underperformance stems from what we believe are many strategic and operational failures, including:

  • A misguided and unfocused strategy attempting to manage the complexities of both wholesale and retail businesses, which has led to managerial and capital allocation issues as well as clear execution shortcomings;
  • Value-destroying deals, demonstrated by major strategic acquisitions such as Albertson’s that were later sold at steep discounts, as well as poorly structured transactions that created unnecessary tax liabilities, confusing and misleading financial statements and valuation concerns;
  • Repeated recruiting failures, including the appointment of five CEOs in a seven-year period, hiring of executives with poor track records and, in our view, questionable business ethics, and nominating or re-nominating board members who lack relevant experience to assist management in strategy development and others that had significant conflicts of interest;
  • A misaligned culture and compensation systemthat has rewarded growth and business size, over profitability, operational excellence, and shareholder value creation; and
  • A lack of planning and investment in key operational areas, such as logistics, data systems, store maintenance, and promotional deals with key suppliers.

 

Management’s Viewpoint: Summary and excerpts from Supervalu’s news release and letter to shareholders:

Supervalu’s current leadership says Blackwells doesn’t deserve to bring in six new board members (out of a total of nine) because it only owns 7.7 percent of the company’s stock (and claims it’s less when looking at how Blackwells counts its shares). Its letter to shareholders stresses how current management is working on “the rapid execution of a strategic transformation strategy that is demonstrating strong momentum and already delivering measurable results” by making Supervalu the wholesale supplier of choice nationwide.

The company “has been in business for more than 140 years, with our roots in the wholesale grocery industry. Over the years, our business evolved to include grocery retail and other supply chain services. Just as the Company has always sought out new ways to improve efficiency and better serve customers, we have also remained committed to identifying and executing on the highest potential market opportunities and taking actions that would drive value for all stockholders,” Supervalu’s letter to shareholders says.

“Long before Blackwells first contacted members of the Supervalu management team…your board had taken bold steps to fundamentally shift the direction of the company and return Supervalu to its roots by becoming a wholesale supplier of choice for grocery retailers across the U.S.”

Steps taken to make this happen include:

  • Completing the Sale of Save-A-Lot, netting $1.3 billion that was used to significantly reduce the Company’s debt and create flexibility to execute transformation initiatives and pursue important strategic acquisitions and growth opportunities.
  • Executing a Dramatic Turnaround of the Wholesale Business.Building on an annual sales base of approximately $8 billion, the Company added $5 billion in sales on a run-rate basis to the Wholesale business in just two years – a growth rate of over 60 percent.
  • Selling and leasing back eight distribution centers, totaling nearly six million square feet of space. This transaction will generate net proceeds of approximately $445 million, which will be used to further reduce outstanding debt.
  • Reducing its retail footprint.In March 2018, Supervalu completed the sale of a majority of its  Farm Fresh retail stores and pharmacy assets for a total of $53 million, and sold its minority stake in a multi-store Cub Foods LLC that generated proceeds of $14 million. In April, it announced that it is pursuing the sale of its corporately owned Shop ‘n Save and Shop ‘n Save East retail operations in order to further optimize its asset base and provide flexibility to invest capital in select, innovative store remodels and in-store merchandising initiatives within certain stronger retail assets.
  • Pursuing new initiatives such as its entry into a multi-year reseller agreement with Instacart, which allows Supervalu to offer the benefits of online shopping and delivery services to more than 3,000 independent retail stores supplied by Supervalu.