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Cerberus’ 16-year Albertsons beta tale of twists and turns

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NEW YORK: For the biggest Albertsons Cos investor, spending 16 years in the checkout line looks like it was worth the wait.

Cerberus Capital Management paid US$350mil (RM1.65bil) in 2006 for struggling Albertsons stores as a real estate play. In the years since – spanning one financial crisis, four US presidencies and a pandemic – the private equity firm has added to its stake, bulked up through acquisitions and (repeatedly) tried to part with the US grocer.

Last week, Kroger Co agreed to buy Albertsons for US$24.6bil (RM116.3bil), valuing Cerberus’s remaining stake at about US$5.2bil (RM25bil).

Though the tie-up isn’t a done deal with antitrust fervour brewing in Washington, it could finally draw a line under a complicated but profitable investment for Cerberus, the New York investment firm led by co-founder Stephen Feinberg.

Cerberus’ rate of return is about 200% over the life of the investment, according to a person familiar with the situation, asking not to be identified discussing private matters. A representative for Cerberus declined to comment.The benchmark annual rate of return for a private equity asset held for 15 years was 13.3%, according to a Cambridge Associates report. Since Cerberus first invested in Albertsons, Kroger’s share price has climbed 324%, while the S&P 500 Consumer Staples Index is up 192%.

When Cerberus bought its first batch of Albertsons stores as part of a three-way split of the company, it didn’t get the trophy assets.

Those went to SuperValu and CVS, with Cerberus picking up underperforming locations across Florida and Arizona. No one at the firm, which began in 1992 as a distressed debt investor, planned to mount a serious challenge to the largest grocery chains.

But under the leadership of Robert “Bob” Miller, the then-chief executive officer who was once a teenage clerk in a California Albertsons, the stores flourished.

By 2012, the business was valued at US$3.5bil (RM16.5bil), including debt.

The quick option – and the usual route for a private equity firm, which typically hold investments for about five to seven years – would have been to cash out, selling its regional portfolio of stores at a decent return.

Instead, Cerberus returned some capital to limited partners and rolled the dice again.

In 2013, it bought back all the stores SuperValu had acquired in the 2006 split. The following year, it agreed to buy Safeway for US$9.2bil (RM43.5bil).

While the deal took almost a year to win regulatory approval, it saved the combined company about US$800mil (RM3.8bil) over multiple years.

Within months of the deal closing, and with more than 2,000 Albertsons stores now under its belt, Cerberus was ready for an exit. An initial public offering (IPO) was filed in 2015 and Wall Street’s biggest banks hit the road, seeking to raise US$1.7bil (RM8bil) from investors eager to buy into its promise to sell more fresh and organic produce.

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