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Cerberus, Klaff, Lubert-Adler Team Up Again For $17.4B Albertson’s Deal –

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Target: Albertson’s Inc.

Price: $17.4 billion

Buyer: Cerberus Capital Management, Lubert-

Adler Partners, Supervalu Inc., CVS Corp., Kimco

Realty, Schottenstein Realty and Klaff Realty

Legal Counsel: Seller: Jones Day; Seller’s board of directors: Sullivan & Cromwell

Financial Advisor: Seller: Goldman Sachs and The Blackstone Group; Buyer: Evercore, Lazard,

Lehman Brothers, UBS and JPMorgan

Cerberus Capital Management, Kimco Realty, Lubert-Adler Partners, Schottenstein Realty and Klaff Realty have joined forces to buy the assets of Albertson’s Inc. that weren’t bought by Supervalu and CVS in a deal announced in late January.

The total deal price is $17.4 billion in cash for Boise, Idaho-based Albertson’s, which put itself up for sale in September. The Cerberus consortium gets 655 operating stores, all of Albertson’s’ distribution centers in the Dallas/Fort Worth division, as well as the Florida, northern California, Rocky Mountain and Southwestern divisions.

Additionally, the deal carves out Albertson’s stores in Idaho, Southern Nevada, Utah, southern California and the Northwest for Supervalu and sells 700 freestanding drug stores to CVS.

Looking at the price the Cerberus consortium paid for the stores, it does look a little bit like Cerberus took the undesirables. Supervalu bought 1,124 stores for $12.4 billion in cash, stock and assumed debt, while CVS is paying $3.9 billion, which means the Cerberus-led group picked up its 655 stores for an estimated $1 billion.

Press reports have said Cerberus is paying for the real estate and not the operational value of the stores, but a spokesman for the firm vigorously denied it, saying the Cerberus plans to continue operations. “Our plan is to operate the stores on an ongoing basis,” is all the Cerberus spokesman would say.

Investors like Lubert-Adler are known for talking with potential buyers who could take over the target’s real estate ahead of time and then pricing its deals accordingly.

This is not the first time Cerberus Capital Management, Lubert-Adler and Klaff Realty have joined up. In 2004, Cerberus, Lubert-Adler and Klaff teamed up with Sun Capital to purchase retailer Mervyn’s from Target for $1.2 billion. That deal came out of Cerberus’s $1 billion Cerberus Institutional Partners LP.

If that deal is any precedent, Cerberus will likely be hanging “for sale” shingles on Albertson’s stores. In September, Inland Western Retail Real Estate Trust bought 25 Mervyn’s stores for $221.8 million.

Cerberus, which manages more than $16 billion and has invested in a wide variety of industries with buyouts of companies like Formica Corp. and Mead Westvaco’s paper business, is also no stranger to real estate.

According to Buyouts, the largest deal Cerberus completed last year was the purchase of LNR Property Corp. for $3.8 billion, out of Cerberus Institutional Partners LP Series III. LNR manages a portfolio of office buildings and acquires portfolios of mortgage-backed securities. It is 75% controlled by Cerberus.

It is unclear where the Cerberus funds came from for the Albertson’s deal. The firm manages hedge fund and private equity capital, and also has a real estate division, Blackacre Capital Group.

The Albertson’s deal triples the size of Supervalu and makes it the second largest supermarket company in the nation, second only to Kroger Co. It also, of course, trails Wal-Mart. Alberston’s shareholders get a 35% stake in Supervalu, the latter getting a number of brand names beyond Albertson’s, including Acme, Shaw’s and Bristol Farms.

In other Cerberus news, the firm was widely reported to be teaming up with Citigroup for a controlling stake in General Motors’s GMAC financial services unit worth between $10 billion and $15 billion.

A second group of bidders reportedly includes the Blackstone Group and Wachovia Corp. GM announced it wanted to sell GMAC in order to help the credit rating of the division.