IPO Report: Albertsons Companies (ABS)

Francis Gaskins |

Albertsons Companies (ABS) is one of the largest food and drug retailers in the United States, with both strong local presence and national scale. The company is based in Boise, ID.

Three other companies are scheduled for the week of Oct. 12. The full IPO calendar is available at IPO Premium.

SEC Documents

Manager, Joint-managers: Goldman Sachs, BofA Merrill Lynch, Citigroup, Morgan Stanley, Deutsche Bank Securities, Credit Suisse, Barclays
Co-managers: Lazard, Guggenheim, Jefferies, RBC Capital Markets, Wells Fargo Securities, BMO Capital Markets, SunTrust Robinson Humphrey, Telsey Advisory Group, Academy Securities, Ramirez, Blaylock Beal Van

End of lockup (180 days): Tuesday, April 12, 2016
End of 40-day quiet period: Tuesday, November 24, 2015

ABS IPO Summary

ABS is one of the largest food and drug retailers in the United States, with both strong local presence and national scale.

As of June 20, 2015, ABS operated 2,205 stores across 33 states under 18 well-known banners, including Albertsons, Safeway, Vons, Jewel-Osco, Shaw’s, Acme, Tom Thumb, Randalls, United Supermarkets, Pavilions, Star Market and Carrs.

Albertsons IPO Valuation

Glossary

Accumulated earnings (mm)

.

.

$90

     

Per share dilution

.

.

-$28.28

     
             

Valuation Ratios

Mrkt Cap (mm)

Price /Sls

Price /Erngs

Price /BkVlue

Price /TanBV

% offered in IPO

Albertsons Companies (ABS)

$11,638

0.2

-16.3

3.3

-6.5

14%

annualizng most recent quarter

       
             

SCORECARD

.

Mgt

Market

Market Do-

Proprie-

Total

1-5, 5 is high

.

.

Grwth

mination

tary

rating

20 is perfect

.

2

1.5

2

1

C, 6.5

 

ABS IPO Conclusion

Neutral

Price to sales .2

P/E -16, indicating fairly high cash furn rate for an operating company

Price to book 3.3

Price to tangible bk -6.5

Expects $440mm in run-rate synergies "by end of '15"

must have meant 'by end of '16'?

Annual earnings adj increase assuming 46% tax rate, $238mm

Business
ABS is one of the largest food and drug retailers in the United States, with both strong local presence and national scale.

As of June 20, 2015, ABS operated 2,205 stores across 33 states under 18 well-known banners, including Albertsons, Safeway, Vons, Jewel-Osco, Shaw’s, Acme, Tom Thumb, Randalls, United Supermarkets, Pavilions, Star Market and Carrs.

Synergies
ABS is currently executing on an annual synergy plan of approximately $800 million related to the acquisition of Safeway, which ABS expects to achieve by the end of fiscal 2018. ABS expects to deliver annual run-rate synergies of approximately $440 million by the end of fiscal 2015.

Ranked #1 or #2 in 68% of markets
ABS operates in 121 MSAs and are ranked #1 or #2 by market share in 68% of them. ABS provides its customers with a service-oriented shopping experience, including convenient and value-added services through 1,698 pharmacies, 1,090 in-store branded coffee shops and 378 adjacent fuel centers. ABS has approximately 265,000 talented and dedicated employees serving on average more than 33 million customers each week.

ABS’s operating philosophy is simple: ABS runs great stores with a relentless focus on driving sales growth. ABS believes that its management team, with decades of collective experience in the food and drug retail industry, has developed a proven and successful operating playbook that differentiates ABS from its competitors.

Decentralized
ABS implements its playbook through a decentralized management structure.

ABS believes this approach allows its division and district-level leadership teams to create a superior customer experience and deliver outstanding operating performance.

These teams are empowered and incentivized to make decisions on product assortment, placement, pricing, promotional plans and capital spending in the local communities and neighborhoods they serve. ABS’s store directors are responsible for implementing its operating playbook on a daily basis and ensuring that its employees remain focused on delivering outstanding service to its customers.

ABS believes that the execution of its operating playbook, among other factors, including improved economic conditions and consumer confidence, has enabled ABS to grow sales, profitability and free cash flow across its business.

During fiscal 2014 and the first quarter of fiscal 2015, excluding Safeway, ABS’s identical store sales grew at 7.2% and 5.1%, respectively.

At Safeway, prior to ABS’s acquisition, the rate of identical store sales growth was 3.0% in fiscal 2014, and accelerated in the first quarter of fiscal 2015 to 3.8%.

ABS believes that implementation of its playbook, together with improved economic conditions and consumer confidence, will enable ABS to further accelerate this rate.

Intellectual property
Trademarks and service marks, including ALBERTSONS®, SAFEWAY®, ACME®, AMIGOS®, CARRS®, JEWEL-OSCO®, MARKET STREET®, PAVILIONS®, RANDALLS®, SAV-ON®, SHAW’S®, STAR MARKET®, TOM THUMB®, UNITED EXPRESS®, UNITED SUPERMARKETS®, VONS®, EATING RIGHT®, LUCERNE®, O ORGANICS®, OPEN NATURE®, MyMixx® and just for U® are protected under applicable intellectual property laws and are the property of ABS’s company and its subsidiaries.

ABS IPO Competition

ABS faces intense competition from other food and/or drug retailers, supercenters, club stores, online providers, specialty and niche supermarkets, drug stores, general merchandisers, wholesale stores, discount stores, convenience stores and restaurants.

ABS and its competitors engage in price and non-price competition which, from time to time, has adversely affected its operating margins.

5% shareholders pre-IPO 

Albertsons Investor Holdings LLC          85.4%

KRS AB Acquisition, LLC           12.0%  

Dividends

No dividends are planned.

Use of proceeds

ABS expects to receive $1.5 billion from its IPO and use it for the following:

(i) to repay all amounts outstanding under its NAI Term Loan Facility (including $845.7 million of principal, plus accrued and unpaid interest thereon),

(ii) to redeem $243.8 million of the outstanding principal amount of its ABS/Safeway Notes (at a redemption price of 107.750% of the principal amount of the ABS/Safeway Notes redeemed), plus accrued and unpaid interest thereon and (iii) to repay $407.7 million of principal, plus accrued and unpaid interest thereon, under the ABS/Safeway Term Loan Facilities.

 

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