Why SUPERVALU Shares Soared

Updated

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of grocer SUPERVALU (NYS: SVU) exploded higher by as much as 41% following reports that have insinuated private-equity firm Cerberus is seeking capital to make a bid for SUPERVALU.

So what: According to Debtwire, Cerberus is attempting to arrange $4 billion to $5 billion in debt financing, with both Bank of America (NYS: BAC) and JPMorgan Chase (NYS: JPM) considering forming a syndicate to aid Cerberus. The private-equity interest in SUPERVALU should be no surprise following another dismal earnings report that witnessed SUPERVALU's cash position shrink further as net retail food sales dipped 7.3%.


Now what: Now you should run for the hills -- at least that's my professional opinion. Today's move higher seems like a gift of unfathomable proportions following another bad quarter. SUPERVALU is now down to just $148 million in cash and has $6.1 billion in debt, as well as countless store renovations to deal with just to keep up with its competitors. In addition, its peers have been seizing on its weakness and taking customers away from its grocery stores with ease. Both traditional grocers like Kroger, which has focused on installing gas stations to make its stores more of a one-stop shop, and Whole Foods Market, which has chosen to push healthier food options at premium prices, have attracted the SUPERVALU shopper in increasing numbers. Unless SUPERVALU can wave a magic wand and make $6.1 billion in debt disappear, I'm not buying into its hype.

The article Why SUPERVALU Shares Soared originally appeared on Fool.com.

Fool contributor Sean Williams owns shares of Bank of America, but has no material interest in any other companies mentioned in this article. You can follow him on CAPS under the screen name TMFUltraLong, track every pick he makes under the screen name TrackUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong.The Motley Fool owns shares of SUPERVALU, Bank of America, JPMorgan Chase, and Whole Foods Market. Motley Fool newsletter services have recommended buying shares of Whole Foods Market and buying calls on SUPERVALU. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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