( UNFI, Supervalu logos )

Supervalu engaged in prolonged negotiations with United Natural Foods Inc. and another grocery wholesaler before agreeing in late July to an acquisition by UNFI.

The other wholesaler, referred to as “Company A” in a new Securities and Exchange Commission filing, put Supervalu down the road to a deal with a December proposal of $23 per share.

By the time Supervalu asked UNFI and the other party to submit their best and final offers in late July, both suitors had upped their respective bids to $32.50 per share.

The SEC filing lays out a detailed timeline of the communications Supervalu had with both interested parties — simultaneously — and how the offers evolved throughout 2018.


Company A

A few months after making its first proposal in December, the unnamed grocery wholesaler began to conduct due diligence on Supervalu, viewing limited non-public information that Supervalu agreed to share in hopes of receiving a higher offer.

Supervalu and Company A executives and their financial advisors met March 15 to discuss Supervalu’s business plan, perspectives on the industry, and potential synergies in the event of a combination of the companies.

In April, Company A upped its proposed price to $27 per share, but in early June, Company A drafted an agreement with contingencies that Supervalu deemed to present risk to a deal getting done, including “introducing conditionality relating to Company A’s debt and equity financing and significant limitations on Supervalu’s recourse in the event of a financing failure, by requiring that Supervalu’s potential internal reorganization be completed prior to closing and by significantly lessening Company A’s commitments to take certain actions if necessary to obtain required antitrust approvals,” according to the SEC filing.

Later that month, Supervalu told Company A it would consider $28.50 per share if the conditionality of the agreement were improved. Company A came back at $27.25 per share, with conditions still attached. Supervalu then informed Company A it would cease talks if concessions were not made related to the conditionality of the merger agreement.


Meanwhile, with UNFI ...

In March, a few months after Company A made its initial proposal, Supervalu CEO Mark Gross called UNFI CEO Steve Spinner and encouraged him to consider making an offer. The organizations had previously had informal discussions about merging.

Later that month — one week after meeting with Company A representatives — Gross and others with Supervalu met with UNFI executives to discuss Supervalu’s business plan and potential synergies with UNFI were a merger to be completed.

In May, UNFI put forth a proposal of $21 per share offer and a request that Supervalu not engage in negotiations with other parties for 30 days. Supervalu declined.

In June, UNFI indicated it could pay more for Supervalu on the condition that the company sell or wind down its retail operations prior to the closing of the deal. Supervalu also pushed back against that proposal.

UNFI came back with an offer of $27 per share — but still contingent on divestiture of retail assets before the deal would be complete.

Supervalu told UNFI that condition was unacceptable.


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Down to the wire

The Supervalu board met July 17 and talked about the latest proposals from Company A and UNFI. The group discussed accelerating negotiations with Company A to see if a deal could be done the next week.

A couple of days later, Supervalu informed UNFI that advanced negotiations were ongoing with another suitor and UNFI should make an offer quickly if it wanted to do so.

Spinner contacted Gross the next day and said UNFI would be willing to drop the condition related to the retail business and offer a higher price.

At the same time, Supervalu continued to negotiate with Company A, but contingencies remained a point of difference.

On July 23, Supervalu informed Company A it would need to improve its offer substantially on both price and conditionality to compete with the other party, which was preparing to submit a better offer.

Later that day, UNFI proposed $29.50 per share for Supervalu.

On July 24, Supervalu told both suitors to make their final offers by 9 a.m. July 25. Company A offered $32.50 per share with fewer conditions than its previous proposals.

UNFI submitted an offer of $29.80 per share, and when Supervalu asked if that was the best and final proposal, the UNFI financial advisors said they didn’t have the authority to describe it as such. Later that day, Spinner reached out to Gross about improving UNFI’s proposal, and Gross said it would need to be ready before the Supervalu board meeting that evening.

UNFI ultimately came back with an offer of $32.50 per share. Company A called during the board meeting but declined to submit an improved offer when asked.


Decision time

Supervalu explained in the SEC filing why it decided to accept the proposal from UNFI.

“The discussion on the differences between the two proposals focused on timing risks and closing certainty relating to each,” Supervalu wrote in the document.

“The board noted during the course of its discussion that a transaction with Company A could take substantially longer than a transaction with UNFI to receive antitrust approval (and a transaction with Company A could require greater divestitures), and as a result the proposal by UNFI offered a higher expected present value as compared to the proposal of Company A.

"The board also asked Mr. Gross to speak about the possible negative effects on the business of a transaction that had a longer sign-to-close period, and Mr. Gross gave his views that there was substantial business and employee risk during such period," Supervalu wrote.

“The board also noted that while Supervalu’s recourse in the case of a financing failure had been improved in Company A’s proposal, there continued to be an underlying risk associated with a financing failure due to Company A-specific factors, such as a decline in Company A’s business, and that no similar risk was present in the UNFI proposal,” Supervalu wrote in the filing.

“Following discussion with its legal and financial advisors, it was the consensus of the Supervalu board that UNFI’s proposal was the best combination of value and closing certainty for Supervalu’s stockholders (including as compared to a transaction with Company A.”


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