Shares of United Natural Foods Inc. on Thursday fell 17 percent after the largest North American distributor of natural, organic and specialty food products said it will acquire major food wholesaler SuperValu Inc. for $2.9 billion in cash, including the assumption of $1.6 billion in outstanding debt and liabilities.
Providence, R.I.-based UNFI (NASDAQ: UNFI), with $9.3 billion in FY2017 sales, said it will pay $32.50 per share in cash – a 67 percent premium to SuperValu’s closing stock price Wednesday, and finance the deal mostly with debt with Goldman Sachs providing financing.
Minneapolis-based SuperValu (NYSE:SVU), the nation’s largest publicly traded food wholesaler, with $14 billion in annual sales, maintains a network of 3,323 wholesale primary stores operated by customers serviced by its food distribution business and 114 traditional retail grocery stores operated under three retail banners in three geographic regions.
The move by UNFI will lessen its dependence on its largest customer, Whole Foods Market, which accounted for 33 percent of UNFI’s net sales in FY2017. Whole Foods is UNFI’s only customer that represented more than 10 percent of total net sales in FY2017.
UNFI has been the primary distributor to Whole Foods for more than 19 years, and its distribution agreement with the organic and natural food grocery giant is not set to expire until September 2025.
Meanwhile, UNFI said it plans to divest SuperValu’s retail assets in a "thoughtful and economic" manner.
The deal, slated to close in the fourth quarter, will create North America’s largest food wholesaler, and expand UNFI’s offerings, especially with the addition of "high-growth perimeter categories such as meat and produce to UNFI’s natural and organic products."
Annual run rate synergies are expected to be more than $175 million by the third year after the close, UNFI said.
Plus, the acquisition is expected to be accretive to adjusted earnings per share in the first year, with double-digit adjusted EPS growth after the first year, excluding one-time costs.
"This transaction accelerates UNFI’s ‘Build out the Store’ growth strategy by immediately enhancing our product range, equipping us to bring an attractive, comprehensive product portfolio to an expanded universe of customers," said Steve Spinner, UNFI CEO. "Combining our leading position in natural and organic foods with SuperValu’s presence in fast-turning products makes us the partner of choice for a broader range of customers."
Spinner will lead the combined entity and UNFI COO Sean Griffin will lead the integration efforts.
The transaction has been approved by the boards of both companies and is subject to antitrust approvals.
UNFI’s stock fell to $34.26, down 17 percent, in afternoon trading Thursday before closing at $34.48, down 16.3 percent, shaving $300 million from its previous day market cap, which now stands at $1.8 billion. UNFI’s shares are down 16.4 percent year-to-date.