ClownLoach wrote: ↑May 21st, 2023, 1:19 pm
There is some real confusion here. There are definitely links to divests going to Save Mart, Ahold, and others. But that means they're not going to do a Spinco. Anything being bought means no Spinco.
Nothing that goes to a Spinco is then being subsequently sold. It makes absolutely no sense. Why would a buyer choose to acquire the stores effectively absorbing the costs of two sales (first to Spinco then Spinco to themselves)? Why pay more? If Spinco happens it sits out there for a while alone and the only place it goes to is possibly a PE buyer like Apollo or Cerberus. Since both seem to be trying to get out of the market I doubt they'd turn around and rebuy a sizable chunk of the company comprised of their weakest links while requiring the creation of a supply chain and corporate headquarters.
Spinco is literally the absolute last resort option intended to contain every single required divestiture, not just some, in the unlikely event they can't get a better deal selling the stores individually or in groups. With the extra caveat that a small Spinco of just a fraction of the divests wouldn't be profitable at all and would immediately sink, the regulators would easily figure that out and torpedo the entire deal. The only way such an organization would survive is if they had guaranteed credit lines and supplier contracts cemented prior to a spinoff and (this is key) they contained every single divestiture period. And it would contain ACI stores as well as KR, they would just acquire the necessary KR stores at the merger close. For Spinco to have any chance of survival it would need to be as large as possible and contain the very best of the divestitures so that there are enough units providing adequate cash return.
The reality is that they can only use Spinco as a threat against potential buyers to limited effect, basically saying give us the best deal for these stores or we could just jettison them to our shareholders, but even then they are at a disadvantage because the valuation of "good stores" to buyers will likely exceed the value of Spinco. So then whatever isn't a "good store" will still be a tough sale as buyers wait for a fire sale and potentially get units for as little as $1.
Tie the dots on the people and there is quite a connection going here between Save Mart, SpinCo, and now Ahold. All the movements could just be coincidences.
So if you have buyer R who thinks they can get a screaming deal on stores that the company is desperate to sell to get the merger to close, is the only viable buyer who will keep the union, and says they will buy a package of 25 stores for $10 million, but the profitability based sale price calculation for the sale price to SpinCo of those 25 stores if they go into SpinCo is $60 million, what do you think is going to happen? Albertsons has a duty to its shareholders to maximize the sale price for the stores sold since the sale price of the stores sold is part of the compensation to Albertsons shareholders for this transaction. Is Albertsons going to select to sell the stores to lowball buyer R for $10 million, or just push the stores into SpinCo at a value of $60 million, then let SpinCo deal with what to do with the stores?
Of course if I am an Albertsons shareholder and I am seeing $10 million in cold cash from buyer R today, vs. $60 million worth of "shares in SpinCo" then that may impact the analysis as well.
I actually think based on the above that the entire reason SpinCo was created was to avoid these divested stores ending up going to random buyers at fire sale prices. SpinCo allowed them to structure a "floor" value for profitable stores that have to be divested. Previously that floor was $0 and there have been cases in the past where they literally had to pay a buyer to take divested stores over as they were facing large daily fines from FTC for failing to divest stores by a certain date as they simply could not find a buyer (see: Safeway/Carrs merger).
Now what appears to be happening is buyers are playing the lowball game you describe so they do this thing where they put an executive in charge of "dealing with SpinCo" (note it says nothing about him actually operating SpinCo once it launches)- perhaps to light a fire to some of these lowball buyers to tell them look, we do not need to sell you this store that has $2 million per year profit for $400k as part of a package, we can just do SpinCo instead, thank you for your interest, now go away.
So I absolutely see SpinCo selling stuff off it assembles (see: Cub Stores divested by Supervalu to Cerberus when Supervalu bought Jewel in Chicago that were sold immediately- Cerberus shut them down almost immediately but most reopened by smaller chains). This allows a clean break to get the divested stores out of Albertsons/Kroger, gives the merged company zero liability for the divested stores since the divested stores never entered their books in the first place, and avoids various bad scenarios like failure to divest, giving stores away, paying competitors to take stores, etc.
Then once the divested stores fail, in 2 years, the merged Kroger can just say "oh well, Albertsons handled the store divest program, it was their stores and their program to select buyers, we are sorry about what happened and we'd love to assume operations of some of those stores again and give the union employees their jobs back......"