Best stocks to invest in – Will Potential Spin-Off of Save-A-Lot Aid Supervalu’s Stock?

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SUPERVALU Inc. SVU has recently filed an initial Form 10 Registration Statement (Form 10) with the U.S. Securities and Exchange Commission to spin off its Save-A-Lot business into a separate, publicly traded company. Per Reuters, grocery chain Supervalu’s board has also approved the possible spin-off of Save-A-Lot stores.

It is to be noted that the company had planned to separate its Save-A-Lot business in July and started the process for the same. However, there is still no confirmation whether it will be a separation or spinoff of Save-A-Lot.

Supervalu stated that its shareholders will get at least 80.1% of the spun off company. The stock of the newly spun off entity would be publicly traded and Eric Claus, who was hired in December to run the division, will become the CEO of the independent company. It will be headquartered at Save-A-Lot’s current office in Earth City.

We note that Supervalu has been undergoing massive restructuring over the past several years, be it cutting down costs or sale of many of its larger chains like Jewel-Osco and Albertson’s.

The company’s performance has been mixed as all the business segments have not generated profits equally, per media reports. While the Save-A-Lot division has been performing well over the past two years, the retail food segment and the independent business have been sluggish.

The company is also struggling with its cost management efforts. In fact, in order to increase operating efficiency, Supervalu has resorted to ‘single sourcing’ in its independent business. Under this system, the company is supplying goods to retailers who source their products only from Supervalu.

Therefore, the spin-off of the discount retail chain Save-A-Lot would help Supervalu to better focus on providing wholesale distribution services to independent retail customers and operating its five regionally based traditional-format grocery banners. The spin-off will also boost shareholder value. Save-A-Lot will also continue to be a leader in hard discount grocery retailing in the United States, following its spin-off.

The company believes that post spin-off, both Supervalu and Save-A-Lot will be able to focus better on their respective businesses and growth opportunities.

Save-A-Lot had 441 company-owned stores and 901 licensee-operated stores at the end of Sep 12 and about $4.6 million in net sales in fiscal 2015. Supervalu had $13.1 billion in non-Save-A-Lot revenues last year.

Supervalu carries a Zacks Rank #3 (Hold).

Some better-ranked food company stocks include Boulder Brands, Inc. BDBD, Campbell Soup Company CPB and Post Holdings Inc. POST. While Boulder Brands and Campbell Soup sport a Zacks Rank #1 (Strong Buy), Post Holdings has a Zacks Rank #2 (Buy).

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CAMPBELL SOUP (CPB): Free Stock Analysis Report
SUPERVALU INC (SVU): Free Stock Analysis Report
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POST HOLDINGS (POST): Free Stock Analysis Report
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