- In response to activist investor Blackwells Capital's call for dramatic changes to its company board and operational approach, Supervalu said it is already taking the necessary actions to maximize value, according to a company release. The retailer/wholesaler confirmed it met with Blackwells in December but was unable to come to an agreement on a path forward. "Despite our efforts to reach a constructive path forward and to discuss overlapping objectives, Blackwells has decided to threaten an unnecessary and counterproductive proxy contest," Supervalu noted in its release.
- As proof of its improvements, Supervalue noted that wholesale now makes up 75% of its annual sales, up from 44% two years prior. The company also pointed to assets it has added through acquisition, including Unified Grocers, and a beefed-up retail leadership team.
- As for its struggling retail stores, Supervalu says it is focused on maximizing value from its retail stores. This includes investing in promising locations and managing underperforming locations for cash.
And so the proxy fight begins.
Following Blackwells Capital's broadside and call for a board shakeup, Supervalu has hit back, noting its wholesale-first strategy has been carefully planned and involves "initiatives that have been underway substantially since before Blackwells became a stockholder," Supervalu noted in its statement.
The retailer/wholesaler said it has made profitable moves in the division, adding valuable customers like The Fresh Market while also acquiring valuable assets like Unified Grocers — a deal Supervalu closed last year. Over the past two years — the time CEO Mark Gross has been at the company's helm — Supervalu has increased its run rate by more than $5 billion, to $13 billion.
Seeming to acknowledge that its 213 retail stores have not performed to expectations, Supervalu says it is allocating capital on a performance basis, noting that underperforming stores are being sold. "Retail assets that are not well positioned for long-term success are being operated to maximize cash flow, including limited capital investment," the company wrote. "Capital invested into our retail stores will continue to be targeted, prudent, and focused in areas designed to generate incremental sales."
This all seems perfectly sensible, but Blackwells notes in its letter that Supervalu has had plenty of time to show results, and hasn't. Noting the current board’s lack of experience in retail, the activist investor has called for a board shakeup, and says it plans to nominate its own members for election during Supervalu's shareholders meeting this summer. "We believe the board as currently constituted is either incapable of or disinterested in implementing the changes needed to rescue the company," Blackwells states. "New directors that are prepared to work with the full board and management to unlock value for all shareholders are desperately needed."
Blackwells estimates that the changes its advocating could improve Supervalu's share price by 215%, to more than $45 per share.
Supervalu is probably kicking itself for its recent execution woes. The company added a significant amount of new business during its most recent financial quarter, but struggled to keep up with demand and ended up paying more worker overtime and other fees than it had anticipated. If Supervalu can fix these issues and show significant wholesale growth in this current earnings period, it could convince shareholders that it’s plan is working. If not, it'll have a tough sell on its hands ahead of this summer's board meeting.