Albertsons 2006 Annual Report Download - page 2

PART I
ITEM 1. BUSINESS
General Development
SUPERVALU is one of the largest companies in the United States grocery channel. SUPERVALU conducts
its retail operations under three retail food store formats: extreme value stores primarily under the retail banner
Save-A-Lot; price superstores, under the regional retail banners of Cub Foods, Shop ’n Save, Shoppers Food &
Pharmacy and bigg’s; and supermarkets, under the regional retail banners of Farm Fresh, Scott’s and
Hornbacher’s. As of the close of the fiscal year, the company conducted its retail operations through 1,381 stores,
including 862 licensed extreme value stores. Store counts are adjusted for the planned sale of Deals and corporate
owned Shop ’n Save Pittsburgh. SUPERVALU also provides supply chain services, including food distribution
and related logistics support services primarily across the United States retail grocery channel. As of the close of
the fiscal year, the company served as the primary grocery supplier to approximately 2,200 retail food stores in
48 states, including its own regional banner store network, and as a secondary supplier to approximately 500
stores.
SUPERVALU is focused on retail growth through targeted new store development, remodel activities,
licensee growth and acquisitions. During fiscal 2006, the company added 17 net new stores through new store
development, excluding the Cub Chicago and Pittsburgh market exits. The company’s plans also include
leveraging its distribution operations by providing logistics and service solutions through an increasingly
efficient supply chain, which should allow it to affiliate new independent customers.
On January 23, 2006, SUPERVALU announced that SUPERVALU, CVS Corporation (“CVS”) and an
investment group led by Cerberus Capital Management, L.P. (the “Cerberus Group”) had reached definitive
agreements to acquire Albertson’s, Inc (“Albertsons”). Each Albertsons stockholder will ultimately be entitled to
receive $20.35 in cash and 0.182 shares of SUPERVALU common stock for each share of Albertsons’ common
stock that they held before the transaction. Pursuant to those agreements, SUPERVALU will acquire the
operations of Acme Markets, Bristol Farms, Jewel-Osco, Shaw’s Supermarkets, Star Markets, and the
Albertsons’ banner stores in the Intermountain, Northwest and Southern California regions, and the related
in-store pharmacies under the Osco and Save-On banners, for a total of approximately 1,125 stores (the
“Proposed Transaction”). The total consideration to be paid by SUPERVALU is approximately $12.4 billion
(based on a $32.65 average stock price using the 20 day trading average of the closing price of SUPERVALU
stock through January 20, 2006) including approximately $3.8 billion in cash and $2.5 billion in stock and the
assumption of approximately $6.1 billion of Albertsons’ debt. Following the Proposed Transaction, which is
expected to close during June 2006, approximately 65 percent of SUPERVALU will be held by existing
SUPERVALU stockholders and approximately 35 percent will be held by former Albertsons’ stockholders, on a
fully diluted basis, including the early settlement of the Albertsons’ 7.25 percent mandatory convertible
securities. The “new” SUPERVALU will have approximately 224 million fully diluted common shares
outstanding, compared to approximately 146 million fully diluted shares outstanding as of February 25, 2006.
After the Proposed Transaction, SUPERVALU is expected to have revenues of approximately $44 billion (of
which approximately 80% will be retail), approximately 194,000 employees, 2,505 owned and licensed stores,
878 in-store pharmacies and 117 fuel centers. The transaction is subject to approval by SUPERVALU
stockholders and Albertsons’ stockholders, the contemporaneous closing of the agreements with the Cerberus
Group and CVS, and the satisfaction or waiver of customary closing conditions. On April 28, 2006, the Securities
and Exchange Commission (“SEC”) declared effective the Form S-4 Joint Proxy Statement / Prospectus in
connection with the Proposed Transaction. Concurrent with the announcement of the Proposed Transaction, the
company sold 26 Cub Foods stores located primarily in the Chicago area in January 2006 to the Cerberus Group
for an after tax loss of approximately $61 million.
SUPERVALU INC., a Delaware corporation, was organized in 1925 as the successor to two wholesale
grocery firms established in the 1870’s. The company’s principal executive offices are located at 11840 Valley
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