Profit From This Tender Offer: SUPERVALU INC. (SVU)

Then again, Supervalu might be a logical target for a fellow grocery-store powerhouse like The Kroger Co. (NYSE:KR) . The Cincinnati-based supermarket giant is even larger than Supervalu and could easily subsume the weakened conglomerate into its corporate ecosystem. Supervalu stores could become part of the 2400 Kroger owned supermarkets and department stores.  Although Kroger already has a solid Midwestern customer base, it could benefit from Supervalu’s logistical infrastructure as well as the addition of its Sav-A-Lot network. However, Kroger has a heavy burden of debt and relatively paltry cash reserves. Any deal between the two companies would have to involve a substantial amount of additional leverage.

It should be noted that Supervalu is taking a significant loss on its sale of Albertsons. In 2006, the company spent about $12 billion to acquire a majority stake in the then-independent grocery chain. Under the terms of the current deal, it stands to recover less than 20 percent of that initial investment. The sheer magnitude of this loss makes it likely that it will remain the target of takeover speculation during the coming months and years.

Given the inherent competitiveness of the supermarket space, the Cerberus-Supervalu deal is unlikely to face regulatory scrutiny. Given Supervalu’s weak financial position and depressed stock price, it is unlikely to face a shareholder revolt. If a rival bidder does not step forward to bid on the chain, it appears likely that this deal will close within the first four months of 2013. In the meantime, Supervalu looks to provide a solid return for risk-conscious investors who wish to hold the stock in the short term.

The article Profit From This Tender Offer originally appeared on Fool.com.

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