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SUPERVALU to Acquire Food Lion Stores, Enhance Business

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Grocery retailer SUPERVALU Inc. is on track to expand its wholesale business with the buyout of 22 Food Lion grocery stores in northern West Virginia, western Maryland, south central Pennsylvania and northwestern Virginia. The takeover is subject to customary closing conditions and is expected to be completed by the next 105 days.

Notably, SUPERVALU is currently in talks with wholesale customers and the Federal Trade Commission (FTC) regarding the acquisition.

Details

Though the acquired stores will initially be operated by SUPERVALU, it will later convert these stores into its Shop ‘n Save format. SUPERVALU supplies as well as supports almost 100 independently owned Shop ‘n Save stores, primarily in western Pennsylvania and West Virginia. These stores are an important part of SUPERVALU’s wholesale business. The latest acquisition will not only enhance SUPERVALU’s scale of operations but also complement its merchandising and marketing strategy.

Notably, these stores have been divested by Ahold and Delhaize to gain FTC approval for their merger. Last week, Belgian international food retailer Delhaize Group (DEG) and Dutch supermarket chain Koninklijke Ahold NV announced their decision to sell a total of 86 stores that are operated by the U.S.-based subsidiaries of the companies.

The deal closely follows a long-term supply agreement inked with Indianapolis, IN-based grocery wholesaler Marsh Supermarkets earlier this month. Under the agreement, which is scheduled to be completed by the end of September, SUPERVALU will provide certain professional services to the grocery chain.

Our Take

The deal comes at an opportune moment for this Zacks Rank #1 (Strong Buy) grocery retailer as it is scheduled to shed its Save-A-Lot stores this fall. SUPERVALU has been reporting lower earnings over the past few quarters due to a substantial reduction in profits. The company's sales have also been declining due to lower comps. However, strategic initiatives and supply agreement like those mentioned above may help SUPERVALU return to its growth track.

Other Stocks that Warrant a Look

Other well-ranked stocks in the food/miscellaneous sector include The J. M. Smucker Company (SJM - Free Report) , Post Holdings Inc. (POST - Free Report) and United Natural Foods Inc. (UNFI - Free Report) . Each of these sports all sport the same Zacks Rank as SUPERVALU.

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