Albertsons wobbles on debut after $ 800 million IPO disappointment

(Bloomberg) – Albertsons Cos. He emerged from 14 years of privately owned Cerberus Capital Management with a groan on Friday as his shares sank after a reduced initial public offering.

The shares opened in New York at $ 15.50 each with a price of $ 16, below the target price range of $ 18 to $ 20. Private equity firm Cerberus and other sponsors of the supermarket chain sold just 50 million shares to raise $ 800 million, having previously offered 65.8 million shares to potential investors.

The shares never rose more than 3.1% on Friday and closed 3.4% at $ 15.45 in New York, giving Albertsons a market value of approximately $ 7.4 billion.

While the coronavirus pandemic has fueled the grocery business, the company had a total debt of $ 8.7 billion as of its last fiscal year, according to its documents. That makes it more leveraged than U.S. supermarket rivals Sprouts Farmers Market Inc. and Grocery Outlet Holding Corp., according to data compiled by Bloomberg. It is also behind rivals like Walmart Inc. and Kroger Co. in implementing popular services like free curbside pickup for online orders.

Chief Executive Vivek Sankaran, a former PepsiCo Inc. executive who took office last year, said in an interview that the company has gained market share in recent months thanks to a “significant increase” in new buyers, both in store and online. , as Americans switched to consuming more food at home. He said the company will invest more to accelerate its e-commerce business, which grew 278% in the first 12 weeks of its fiscal year. Albertsons’ own-brand food brands, four of which generate more than $ 1 billion in sales, are another growth opportunity, he said.

Albertsons’ public debut came after a failed attempt five years ago. In 2015, the company requested a list to raise up to $ 1.7 billion before postponing and finally withdrawing that plan. A multi-million dollar merger with Rite Aid Corp. was scrapped in 2018 after opposition to the deal before the shareholder vote, leaving Cerberus again looking for a way out.

The IPO was the first in the United States to trade below its trading range since GFL Environmental Inc.’s $ 1.4 billion offer on March 3.

Groceries, Software

Albertsons’ disappointing demo contrasts with the commercial debut of US communications software company Agora Inc., which traded its shares above its trading range to raise $ 350 million on Thursday. Showing the continued strength of the technology listings, Agora’s shares rose as much as 179% of the offer price. The shares closed 153% at $ 51.50 in the New York trade, giving the company a market value of $ 4.1 billion.

For the year ended February 29, Albertsons earned $ 466 million in revenue of more than $ 62 billion, compared to a loss of $ 502 million in revenue of $ 59 billion in fiscal year 2015, according to his documents. .

Albertsons’ business could have stabilized, but the limited opening of new stores could hinder revenue growth and put rivals at an advantage, Jennifer Bartashus, senior analyst at Bloomberg Intelligence, wrote in a report. It can also be difficult for Albertsons to gain market share as it follows its key peers in e-commerce, Bartashus said.

Jefferies analysts predicted in March, as the Covid-19 pandemic kept people away from restaurants, that “frantic home shopping for food” could add $ 90 billion in revenue to the packaged food industry For three months. But many shoppers have been choosing online deliveries instead of trying to stay socially distant in supermarket aisles. Instacart Inc.’s valuation, for example, hit $ 13.7 billion in a funding round after the popularity of the grocery delivery service exploded, above the $ 7.9 billion value it earned in 2018.

Cerberus Stake

New York-based Cerberus first invested in Albertsons in 2006 in a $ 17.4 billion acquisition along with CS Corp. and Supervalu Inc., neither of which remains an investor. Based on a previously planned larger IPO, Cerberus’s share was cut to 31% from 37% after the listing. Albertsons, based in Boise, Idaho, will receive no profit on this week’s stock sale.

Apollo Global Management Inc. placed $ 1.75 billion in Albertsons in May through a preferred stock offering, equivalent to a 17.5% stake in the supermarket after the conversion.

US IPOs fell back in June after equity market volatility closed deals in March and April. A total of $ 13.2 billion was raised from 31 listings this month alone, including a $ 2.5 billion offer from Royalty Pharma Plc and the $ 1.9 billion deal from Warner Music Group Corp., according to data compiled by Bloomberg. June is expected to be the fifth busiest month for the US IPO in the past decade, including the Albertsons listing, the data shows.

The grocery store list was led by Bank of America Corp., Goldman Sachs Group Inc., JPMorgan Chase & Co. and Citigroup Inc. The company’s shares are listed on the New York Stock Exchange under the symbol ACI.

(Updates with the closing share price in the third paragraph)

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