Albertsons explores bid for high-end grocer Whole Foods

Albertsons, the US supermarket operator controlled by buyout group Cerberus Capital Management, is exploring a takeover of high-end grocer Whole Foods Market, said two people briefed about the matter.

The US private equity group that backs Albertsons has had preliminary talks with bankers about making a bid for Whole Foods, said one person close to the buyout firm. No formal bid has yet been made, said both people briefed on the situation.

Albertsons’ interest comes two weeks after Jana Partners, the activist investor, revealed it had built a 9 per cent stake in Whole Foods and raised the possibility of a sale of the grocer, which has a market value of $11.4bn. A deal would be one of the largest take-privates in recent years, the people said.

Whole Foods has hired Evercore to advise it on a strategic review of its business operations, which could include exploring a sale, said one person close to the company, based in Austin, Texas.

Cerberus has been looking for deals to expand its supermarket business. Bloomberg reported in March that Albertsons had held preliminary talks to merge with Sprouts Farmers Market, an organic food retailer.

However, talks between Albertsons and Sprouts have not proceeded, according to two people briefed about the matter, prompting Cerberus to take a serious look at Whole Foods, which is significantly larger.

Whole Foods share closed 2.1 per cent higher after the Financial Times reported Albertson’s interest. Sprouts shares fell by 3.3 per cent.

A bid for Whole Foods would come less than three years after Albertsons acquired Safeway for $9bn in a deal that turned the Boise, Idaho-based group into the third-largest supermarket chain in revenue terms behind Walmart and Kroger.

In 2015 Albertsons, which operates about 2,200 stores, shelved a plan for an initial public offering because of market jitters.

Cerberus is likely to team up with other investors to carry out a successful deal given Whole Foods’ size.

Albertsons, like Walmart and Kroger, has been under enormous pressure in recent years as a price war between grocers has taken a toll on supermarket owners’ top and bottom lines.

Whole Foods has also felt the pressure from several fronts, including traditional supermarkets’ improved organic offerings, small retailers such as Trader Joe’s and Sprouts competing directly, and growing online sales from e-commerce groups ranging from Amazon and Fresh Direct.

Jana told the Whole Foods management this month that it wanted a “review of strategic alternatives, particularly in light of [Whole Foods’] apparent unwillingness to engage in discussions with third parties regarding such alternatives”.

Some analysts said Albertsons’ interest in Whole Foods could spark a bidding war if other supermarket chains indicated they would also like to buy the high-end grocer.

Evercore, Albertson and Cerberus declined to comment. Whole Foods did not immediately return a request for comment.