Filed under: Food & Staples Retailing
On 17-Oct-02 CVC Capital Partners (‘CVC’) acquired Laurus NV’s (‘Laurus’) troubled Spanish supermarket subsidiary Grupo El Arbol Distribucion y Supermercados S.A. (‘El Arbol’). The Laurus 2002 annual report provides some insight into the transaction. El Arbol had €401m in total borrowings (including inter-company funding) at 31-Dec-01 and saw an additional €47m in cash outflow from operations in the year to 17-Oct-02 resulting in estimated total borrowings of €448m.
This is pretty close to what the company estimated it would have lost had it chosen to liquidate the company (€455m according to leaked company memos).
The deal with CVC required Laurus to: (i) convert €176m in inter-company loans into equity; (ii) inject €40m in additional capital; (iii) provide €28m in senior secures loans, and (iv) provide €30m in subordinated convertible loans (convertible at the option of CVC).
Deducting from the €448m in total borrowings pre-restructuring: the €176m in converted inter-company loans, the €40m capital injection and the €30m in subordinated convertible loans results in approximately €202m in borrowings at El Arbol. Laurus then transferred the shares to CVC for a nominal amount. According to CVC the transaction valued El Arbol at US$181m/€186m. The €16m (€202m minus €186m) delta could be explained by the – undisclosed – cash balance at El Arbol.
This implied the following mutiples: 25.7% of sales for 2002 (€785m), 1.5x book value of assets (€130m at 31-Dec-01). As the company reported a loss before interest tax depreciation and amortization (€15m loss before interest and tax) in both 2001 and 2002 no meaningful earnings multiples could be derived.
In Dec-05 a consortium consisting of Cerberus, Supervalu, CVS Corp and Kimco Realty reportedly offered US$9.6bn for the outstanding common stock of US food retailer Albertson’s, Inc. Including the company’s net indebtedness of US$6.4bn, this valued the business at exactly US$16bn. This implied the following multiples for the twelve months to 3-Nov-05: 39% of sales (US$41,273m), 6.6x EBITDA (US$2,429m), 12.6x EBIT (US$1,272m), and 153% of net capital employed (US$10,427m).
On 3-Feb-05 the company had US$8.2bn worth of land and buildings (at book value) on it’s balance sheet. This represents approximately half of its stores and most of its administrative offices and distribution facilities. The remaining stores are leased. The presence of a real estate investor in the consortium implies that the consortium intended to use at least part of that real estate to finance the transaction. Refinancing the real-estate through a sale at book value and leaseback at an estimated yield of 5% would cut the purchase price in half, while only reducing EBITDA by only US$400m (1/6th) thereby reducing the purchase price multiple from 6.6x to 4.0x EBITDA.
Management rejected the offer as being too low and terminated the sale process and focusing on selling underperforming units of the company.
