Albertsons Inc. has received a preliminary takeover bid from larger grocery store rival Kroger Co., while its drug store unit has attracted bids from three pharmacy chains, sources familiar with the situation said Friday.
Albertsons put itself up for sale in September after struggling against competition from discounters such as Wal-Mart Stores Inc. In addition to its namesake grocery stores, Albertsons owns supermarkets including Acme and Shaws, as well as drugstores Osco Drug and Sav-on Drugs.
Despite its competitive struggles, Albertsons, as a whole, could fetch more than $10 billion, plus the assumption of $6.5 billion of debt, analysts said. It was unclear what the drugstore chain would be worth on its own.
"We are somewhat surprised by these numbers but recognize that Albertsons does own some valuable assets, including real estate and the chain's drugstore assets," Prudential Equity Group analysts said in a research report.
Kroger , the No. 1 U.S. grocer, submitted a takeover offer for the entire company, competing against several teams of private equity firms, sources said.
Meanwhile, CVS Corp., Walgreen Co. and Rite Aid Corp. bid solely on the drugstore chains, the sources said.
Prudential suggested that investors take advantage of the spike in Albertsons' stock price on Friday to sell their shares. The firm said the stock may eventually settle lower as the market looks at the company's fundamentals and growth outlook, rather than its value as a takeover candidate.
"The possibility still exists that the stock's valuation may once again reflect the business fundamentals rather than the company's value as a corpse -- with the former being much lower than the latter, in our view," the analysts said in the report.
Prudential analysts said they "continue to suggest that investors use news flow such as today's as a 'get out of jail free' card."
Kroger could face anti-trust scrutiny
A merger of Kroger and Albertsons may face intense regulatory scrutiny due to their dominant marketshare, analysts said.
The combined company may be forced to divest some assets or chains that could be snatched up by smaller rivals looking to bulk up in specific markets, analysts said.
A&P or Dutch retailer Royal Ahold NV , which owns Stop & Shop, could be logical buyers for Albertsons' Acme chain to build up their mid-Atlantic marketshare, analysts said.
Safeway Inc. , the No. 3 U.S. grocery chain, had eyed Albertsons but backed away, sources said. Safeway could return as a suitor for Shaw's Supermarkets if that chain got divested, analysts said.
Tesco , Britain's top retailer, last month denied media reports that it would submit a bid. Some analysts said Tesco, however, could be drawn to Albertsons' Jewel-Osco chain in Chicago.
Private equity bids
Albertsons has also drawn bids from teams of private equity firms, sources said.
Apollo Management, Kohlberg Kravis Roberts & Co. and Texas Pacific Group have formed one bidding group, while Thomas H. Lee, Bain Capital and Warburg Pincus have formed another team.
A third group consists of hedge fund Cerberus Capital and Kimco Realty Corp. , a real estate investment trust, the sources said.
Yucaipa Cos., the investment firm owned by billionaire grocery magnate Ron Burkle, also bid on Albertsons, sources said. Earlier this year, Yucaipa bought Pathmark Stores Inc., which operates grocery stores in New York and the greater Philadelphia region.
CVS, Rite-Aid and Walgreen declined to comment. Albertsons, Kroger and Safeway could not be immediately reached for comment.
Bain, KKR and Yucaipa declined to comment. Apollo, Cerberus, Kimco Texas Pacific, Thomas H. Lee, and Warburg Pincus could not be immediately reached for comment.