S-4/A 1 ds4a.htm AMENDMENT NO. 2 TO FORM S-4 Amendment No. 2 to Form S-4
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As filed with the Securities and Exchange Commission on April 28, 2006

Registration No. 333-132397

 


SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 


Amendment No. 2 to

FORM S-4

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

 


SUPERVALU INC.

(Exact Name of Registrant as Specified in Its Charter)

 

Delaware   5140   41-061700

(State or Other Jurisdiction of

Incorporation or Organization)

 

(Primary Standard Industrial

Classification Code Number)

 

(I.R.S. Employer

Identification Number)

 


11840 Valley View Road

Eden Prairie, Minnesota 55344

(952) 828-4000

(Address, Including Zip Code, and Telephone Number, Including Area Code, of Registrant’s Principal Executive Offices)

 


NEW ALBERTSON’S, INC.

(Exact Name of Registrant as Specified in Its Charter)

 

Delaware   5140   20-4067706

(State or Other Jurisdiction of

Incorporation or Organization)

 

(Primary Standard Industrial

Classification Code Number)

 

(I.R.S. Employer

Identification Number)

 


c/o Albertson’s, Inc.

250 East Parkcenter Boulevard

Boise, Idaho 83706

(208) 395-6200

(Address, Including Zip Code, and Telephone Number, Including Area Code, of Registrant’s Principal Executive Offices)

 


 

David L. Boehnen, Esq.

Executive Vice President

SUPERVALU INC.

11840 Valley View Road

Eden Prairie, Minnesota 55344

(952) 828-4151

 

John R. Sims, Esq.

Executive Vice President and General Counsel

New Albertson’s, Inc.

250 East Parkcenter Boulevard

Boise, Idaho 83706

(208) 395-6200

(Name, Address, Including Zip Code, and Telephone Number, Including Area Code, of Agent for Service)

 


Copies to:

 

Andrew R. Brownstein, Esq.

Igor Kirman, Esq.

Wachtell, Lipton,

Rosen & Katz

51 West 52nd Street

New York, New York 10019

(212) 403-1000

 

John P. Breedlove, Esq. Associate General Counsel and Corporate Secretary SUPERVALU INC.

11840 Valley View Road

Eden Prairie,

Minnesota 55344

(952) 828-4154

 

Lyle G. Ganske, Esq.

Jones Day

901 Lakeside Avenue

Cleveland, Ohio 44114

(216) 586-3939

 

Mark E. Betzen, Esq.

Jones Day

2727 North Harwood Street

Dallas, Texas 75201

(214) 220-3939

 


Approximate date of commencement of proposed sale to public:  As soon as practicable following the effective date of this registration statement and upon completion of the transactions described in the enclosed joint proxy statement/prospectus.

If the securities being registered on this form are being offered in connection with the formation of a holding company and there is compliance with General Instruction G, check the following box.  ¨

If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ¨

If this form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ¨

 


The registrants hereby amend this registration statement on such date or dates as may be necessary to delay its effective date until the registrants shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the registration statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.

 



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TO THE STOCKHOLDERS OF

SUPERVALU INC. AND

ALBERTSON’S, INC.

SUPERVALU INC., which is referred to as Supervalu, Albertson’s, Inc., which is referred to as Albertsons, and several other parties have entered into a series of agreements that, taken as a whole, will result in the sale of Albertsons to a consortium of buyers including Supervalu, which will acquire Albertsons’ core supermarket business. The transactions contemplated by the agreements include two mergers that we refer to as the reorganization merger and the Supervalu merger. In the reorganization merger, Albertsons will become a wholly owned subsidiary of a new company that we refer to as New Albertsons. In the Supervalu merger, New Albertsons will become a wholly owned subsidiary of Supervalu. As a result of these transactions, Albertsons stockholders will ultimately be entitled to receive $20.35 in cash and 0.182 shares of Supervalu common stock for each share of Albertsons common stock that they held before the transactions. As described more fully in the accompanying joint proxy statement/prospectus under the caption “SUPERVALU INC. and Subsidiaries Unaudited Pro Forma Condensed Combined Financial Statements,” as a result of these transactions Supervalu expects to pay approximately $8.6 billion in cash and to issue approximately 76.7 million shares of Supervalu common stock in the Supervalu merger, and will acquire net assets and liabilities, excluding debt assumed, of approximately $17.7 billion. The purchase price comprises assets with an estimated fair market value of approximately $24.0 billion, including goodwill of approximately $4.9 billion, and liabilities with an estimated fair market value of approximately $6.3 billion. The assets acquired are inclusive of $4.9 billion of cash held by New Albertsons as a result of the simultaneous sale of the standalone drug and non-core businesses.

Upon completion of the mergers, we estimate that Albertsons’ former stockholders will own approximately 35% of the then-outstanding Supervalu common stock on a fully diluted basis, based on the number of shares of Supervalu and Albertsons common stock outstanding on April 24, 2006. Supervalu’s stockholders will continue to own their existing shares, which will not be affected by the mergers. Shares of Supervalu common stock are listed on the New York Stock Exchange under the symbol “SVU.”

As a result of the transactions, a group of investors led by Cerberus Capital Management, L.P. (which we refer to as the Cerberus group) will purchase Albertsons’ non-core supermarket business, and CVS Corporation, together with its subsidiary, CVS Pharmacy, Inc. (which we refer to together as CVS), will purchase Albertsons’ standalone drug store business.

We are each holding a special meeting of stockholders in order to obtain the stockholder approvals necessary to complete the mergers. At the Albertsons special meeting, which will be held at 9:00 a.m., Eastern Daylight Time, on May 30, 2006, at the offices of Sullivan & Cromwell LLP, 125 Broad Street, 37th Floor, New York, New York 10004-2498, unless postponed or adjourned to a later date, Albertsons will ask its stockholders to adopt the merger agreement, and to adopt an amendment to its restated certificate of incorporation that will provide for certain appraisal rights under Delaware law for Albertsons stockholders, subject to the completion of the Supervalu merger. At the Supervalu special meeting, which will be held at 1:00 p.m., Eastern Daylight Time, on May 30, 2006, at the offices of Wachtell, Lipton, Rosen & Katz, 51 West 52nd Street, New York, New York 10019, unless postponed or adjourned to a later date, Supervalu will ask its stockholders to authorize the issuance of shares of Supervalu common stock in connection with the Supervalu merger.

The obligations of Supervalu and Albertsons to complete the mergers are also subject to the satisfaction or waiver of several other conditions to the mergers, including antitrust clearance and the completion of the transactions involving CVS and the Cerberus group. Assuming that each of the closing conditions of Albertsons and Supervalu has been satisfied or waived, we currently expect to complete the transactions within one week after the special meetings of the Albertsons and Supervalu stockholders. If the merger agreement is terminated under certain circumstances, Albertsons may be required to pay Supervalu a termination fee of $276 million, and Supervalu may be required to pay Albertsons a termination fee of $135 million (or $250 million if the merger agreement is terminated for antitrust-related reasons).

More information about Supervalu, Albertsons and the proposed transactions is contained in this joint proxy statement/prospectus. We urge you to read this joint proxy statement/prospectus, and the documents incorporated by reference into this joint proxy statement/prospectus, carefully and in their entirety. In particular, see “ Risk Factors” beginning on page 20.

After careful consideration, each of our boards of directors has approved the merger agreement and has determined that it is advisable to enter into the mergers. Accordingly, the Albertsons board of directors recommends that the Albertsons stockholders vote FOR the adoption of the merger agreement and FOR the adoption of the amendment to its restated certificate of incorporation. The Supervalu board of directors recommends that the Supervalu stockholders vote FOR the issuance of Supervalu common stock to be issued in connection with the Supervalu merger.

We are very excited about the opportunities the transactions bring to both Supervalu and Albertsons stockholders, and we thank you for your consideration and continued support.

 

Jeffrey Noddle

Chairman and Chief Executive Officer

SUPERVALU INC.

 

Lawrence R. Johnston

Chairman, Chief Executive Officer and President

Albertson’s, Inc.

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or passed upon the adequacy or accuracy of this joint proxy statement/prospectus. Any representation to the contrary is a criminal offense.

This joint proxy statement/prospectus is dated April 28, 2006,

and is first being mailed to Supervalu and Albertsons stockholders on or about May 1, 2006.


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REFERENCES TO ADDITIONAL INFORMATION

Except where we indicate otherwise, as used in this joint proxy statement/prospectus, “Supervalu” refers to Supervalu and its consolidated subsidiaries and “Albertsons” refers to Albertsons and its consolidated subsidiaries. This joint proxy statement/prospectus incorporates important business and financial information about Supervalu and Albertsons from documents that each company has filed with the Securities and Exchange Commission, which we refer to as the SEC, but that have not been included in or delivered with this joint proxy statement/prospectus. For a list of documents incorporated by reference into this joint proxy statement/prospectus and how you may obtain them, see “Where You Can Find More Information” beginning on page 168.

This information is available to you without charge upon your written or oral request. You can obtain the documents incorporated by reference into this joint proxy statement/prospectus by accessing the SEC’s Web site maintained at www.sec.gov.

In addition, Supervalu’s SEC filings are available to the public on Supervalu’s Web site, www.supervalu.com, and Albertsons’ filings with the SEC are available to the public on Albertsons’ Web site, www.albertsons.com. Information contained on Supervalu’s Web site, Albertsons’ Web site or the Web site of any other person is not incorporated by reference into this joint proxy statement/prospectus, and you should not consider information contained on those Web sites as part of this joint proxy statement/prospectus.

You may also obtain documents incorporated by reference into this document, without charge, if you request them in writing or by telephone from:

 

If you are an Albertsons stockholder:   If you are a Supervalu stockholder:

Albertson’s, Inc.

Corporate Secretary Department

250 Parkcenter Boulevard

Boise, Idaho 83726

Telephone: (208) 395-6200

 

Innisfree M&A Incorporated

501 Madison Avenue

New York, New York 10022

Telephone: (888) 750-5834

If you would like to request documents, please do so by May 22, 2006, in order to receive them before the special meetings.

Supervalu has supplied all information contained in or incorporated by reference in this joint proxy statement/prospectus relating to Supervalu, and Albertsons has supplied all information contained in or incorporated by reference in this joint proxy statement/prospectus relating to Albertsons.


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ALBERTSON’S, INC.

250 Parkcenter Boulevard

P.O. Box 20

Boise, Idaho 83726

NOTICE OF SPECIAL MEETING OF STOCKHOLDERS

TO BE HELD ON MAY 30, 2006

To our fellow stockholders of Albertson’s, Inc.:

We will hold a special meeting of stockholders at 9:00 a.m., Eastern Daylight Time, on May 30, 2006, at the offices of Sullivan & Cromwell LLP, 125 Broad Street, 37th Floor, New York, New York 10004-2498, unless postponed or adjourned to a later date. This special meeting will be held for each of the following purposes:

1. To consider and vote on a proposal to adopt an Agreement and Plan of Merger, dated as of January 22, 2006, as it may be amended from time to time, by and among Albertsons, New Albertsons, New Diamond Sub, Inc. (a wholly owned subsidiary of New Albertsons, which we refer to as New Diamond Sub), Supervalu, and Emerald Acquisition Sub, Inc. (a wholly owned subsidiary of Supervalu, which we refer to as Acquisition Sub), in which:

 

    New Diamond Sub would be merged with and into Albertsons (which we refer to as the reorganization merger), with Albertsons becoming a wholly owned subsidiary of New Albertsons, and each outstanding share of Albertsons common stock being converted into one share of New Albertsons; and

 

    Acquisition Sub would be merged with and into New Albertsons (which we refer to as the Supervalu merger) with New Albertsons becoming a wholly owned subsidiary of Supervalu, and each outstanding share of New Albertsons common stock being converted into the right to receive $20.35 in cash and 0.182 shares of Supervalu common stock.

A copy of the merger agreement is attached as Annex A to the accompanying joint proxy statement/prospectus.

2. To consider and vote on a proposal to adopt an amendment to Albertsons’ restated certificate of incorporation, which we refer to as the charter amendment, and which would provide for appraisal rights under Delaware law for holders of shares of Albertsons common stock in connection with the reorganization merger if the Supervalu merger is completed.

3. To approve adjournments of the Albertsons special meeting, including, if necessary, to permit further solicitation of proxies if there are not sufficient votes at the time of the Albertsons special meeting to approve the above proposals.

4. To consider and take action upon any other business that may properly come before the Albertsons special meeting or at any adjournment or postponement of the Albertsons special meeting.

These items of business are described in the accompanying joint proxy statement/prospectus. Only stockholders of record at the close of business on April 24, 2006, are entitled to notice of, and to vote at, the Albertsons special meeting and any adjournments or postponements of the Albertsons special meeting.

Albertsons’ board of directors has approved the merger agreement, the transactions contemplated by the merger agreement and the charter amendment, and has determined that the merger agreement, the transactions contemplated by the merger agreement and the charter amendment are advisable and fair to, and in the best interests of, Albertsons and its stockholders. Albertsons’ board of directors recommends that you vote FOR the adoption of the merger agreement and FOR the adoption of the charter amendment described in this joint proxy statement/prospectus.

If the charter amendment is adopted and becomes effective and the Supervalu merger occurs, Albertsons stockholders will be entitled to appraisal rights in connection with the reorganization merger. See “The Mergers—Appraisal Rights of Albertsons Stockholders” beginning on page 92.


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Your vote is very important. If you plan to attend the Albertsons special meeting in person, please follow the applicable advance registration requirements in this joint proxy statement/prospectus. An admission card, which is required for admission to the meeting, will be mailed to you prior to the meeting. Whether or not you plan to attend the Albertsons special meeting in person, please complete, sign and date the enclosed proxy card(s) as soon as possible and return it in the postage-prepaid envelope provided, or submit your proxy by telephone or over the Internet as described in the accompanying joint proxy statement/prospectus. Completing a proxy now will not prevent you from being able to vote at the special meeting by attending in person and casting a vote. However, if you do not return or submit the proxy or vote in person at the special meeting, the effect will be the same as a vote against the proposal to adopt the merger agreement and the proposal to adopt the charter amendment.

By order of the board of directors,

Colleen Batcheler

Vice President and Corporate Secretary

Please submit your proxy promptly. You can find instructions for voting on the enclosed proxy card.

 


If you have questions, contact:

Georgeson Shareholder Communications, Inc.

17 State Street, 10th Floor

New York, New York 10004

Telephone: (800) 868-1359

 


Boise, Idaho, April 28, 2006

Your vote is important. Please complete, date, sign and return your proxy

card(s), or submit your proxies by telephone or over the Internet

at your earliest convenience so that your shares are represented at the meeting.


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SUPERVALU INC.

11840 Valley View Road

Eden Prairie, Minnesota 55344

NOTICE OF SPECIAL MEETING OF STOCKHOLDERS

TO BE HELD ON MAY 30, 2006

To our fellow stockholders of SUPERVALU INC.,

The board of directors of Supervalu has unanimously approved an Agreement and Plan of Merger by and among Albertsons, New Albertsons, New Diamond Sub, Supervalu, and Acquisition Sub. As a result of a series of transactions governed by the merger agreement and other transaction agreements, Supervalu will acquire the core supermarket business of Albertsons, the Cerberus group will purchase Albertsons’ non-core supermarket business, and CVS will purchase Albertsons’ standalone drug store business.

The merger agreement provides for two mergers, the reorganization merger and the Supervalu merger. In the reorganization merger, Albertsons will become a wholly owned subsidiary of a new company that we refer to as New Albertsons, and each outstanding share of Albertsons common stock will be converted into one share of New Albertsons common stock. In the Supervalu merger, New Albertsons will become a wholly owned subsidiary of Supervalu, and each outstanding share of New Albertsons common stock will be converted into the right to receive $20.35 in cash and 0.182 shares of Supervalu common stock. We estimate that immediately after the mergers, Albertsons’ former stockholders will hold approximately 35% of the then-outstanding shares of Supervalu common stock on a fully diluted basis, based on the number of shares of Supervalu and Albertsons common stock outstanding on April 24, 2006. Supervalu stockholders will continue to own their existing shares, which will not be affected by the mergers.

We will hold a special meeting of stockholders at 1:00 p.m., Eastern Daylight Time, on May 30, 2006, at the offices of Wachtell, Lipton, Rosen & Katz, 51 West 52nd Street, New York, New York 10019. The special meeting will be held for each of the following purposes:

1. To consider and vote on a proposal to issue Supervalu common stock in connection with the Supervalu merger.

2. To approve adjournments of the Supervalu special meeting, including, if necessary, to permit further solicitation of proxies if there are not sufficient votes at the time of the Supervalu special meeting to approve the above proposal.

3. To consider and take action upon any other business that may properly come before the Supervalu special meeting or at any adjournment or postponement of the Supervalu special meeting.

These items of business are described in the accompanying joint proxy statement/prospectus. Only stockholders of record at the close of business on April 21, 2006, are entitled to notice of, and to vote at, the Supervalu special meeting and any adjournments or postponements of the Supervalu special meeting.

Supervalu’s board of directors has approved the merger agreement and the transactions contemplated by the merger agreement, and has determined that it is advisable to enter into the Supervalu merger. Supervalu’s board of directors recommends that you vote FOR the issuance of Supervalu common stock in connection with the Supervalu merger.

Your vote is very important. If you plan to attend the Supervalu special meeting in person, please check the appropriate box when you return the enclosed proxy card(s), or confirm your attendance when you submit your proxy by telephone or Internet. Please note that you will need an admission ticket or proof that you own Supervalu stock to be admitted to the Supervalu special meeting. Whether or not you plan to attend the Supervalu special meeting in person, please complete, sign and date the enclosed proxy card(s) as soon as possible and return it in the postage-prepaid envelope provided, or submit your proxy by telephone or over the Internet as described in the accompanying joint proxy statement/prospectus. Completing a proxy now will not prevent you from being able to


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vote at the special meeting by attending in person and casting a vote. However, if you do not return or submit the proxy or vote in person at the special meeting you could negatively affect the outcome of the proposal to approve the issuance of Supervalu common stock in connection with the Supervalu merger.

By order of the board of directors,

John P. Breedlove

Associate General Counsel and Corporate Secretary

Please submit your proxy promptly. You can find instructions for voting on the enclosed proxy card.

 


If you have questions, contact:

Innisfree M&A Incorporated

501 Madison Avenue

New York, New York 10022

Telephone: (888) 750-5834

 


Eden Prairie, Minnesota, April 28, 2006

Your vote is important. Please complete, date, sign and return your proxy

card(s) or, if available, submit your proxy by telephone or over the Internet

at your earliest convenience so that your shares are represented at the meeting.


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TABLE OF CONTENTS

 

     Page

QUESTIONS AND ANSWERS ABOUT THE SPECIAL MEETINGS

   1

SUMMARY

   4

Overview of the Transactions

   4

The Mergers

   7

Merger Consideration

   7

The Separation and Standalone Drug Sale

   7

The Separation

   7

The Standalone Drug Sale

   8

The Charter Amendment

   8

Opinions of Our Financial Advisors

   8

Interests of Albertsons’ Directors and Executive Officers in the Mergers

   9

Appraisal Rights

   9

Conditions to Completion of the Mergers

   10

Termination of the Merger Agreement and Termination Fees

   11

Material United States Federal Income Tax Consequences

   11

Risks

   11

Legal Proceedings

   11

Comparison of Rights of Stockholders

   12

Information about Albertsons

   12

Information about Supervalu

   12

Information about New Albertsons

   12

FINANCIAL SUMMARY

   13

Albertsons Market Price Data and Dividends

   13

Supervalu Market Price Data and Dividends

   14

Selected Historical Financial Data of Albertsons

   15

Selected Historical Financial Data of Supervalu

   16

Selected Unaudited Pro Forma Financial Data

   16

COMPARATIVE PER SHARE INFORMATION

   18

COMPARATIVE MARKET VALUE INFORMATION

   19

RISK FACTORS

   20

Risks Relating to the Mergers

   20

Risks Relating to Supervalu’s Operations After the Completion of the Mergers

   23

CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS

   25

Economic and Industry Conditions

   25

Transaction or Commercial Factors

   25

Legal/Political/Governmental Factors

   25

Operating Factors

   26

THE ALBERTSONS SPECIAL MEETING

   27

General

   27

Date, Time and Place of the Albertsons Special Meeting

   27

Purposes of the Albertsons Special Meeting

   27

Record Date; Outstanding Shares; Shares Entitled to Vote

   27

Quorum and Vote Required

   27

 

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     Page

Recommendation of the Albertsons Board of Directors

   28

Voting by Albertsons’ Directors and Executive Officers

   29

Voting; Proxies

   29

Voting Shares Held in Street Name

   29

Abstaining from Voting

   30

How to Vote

   30

Revoking Your Proxy

   30

Other Voting Matters

   31

Voting in Person

   31

Electronic Access to Proxy Materials

   32

People with Disabilities

   32

Proxy Solicitations

   32

Other Business; Adjournments

   32

Assistance

   32

THE SUPERVALU SPECIAL MEETING

   33

General

   33

Date, Time and Place of the Supervalu Special Meeting

   33

Purposes of the Supervalu Special Meeting

   33

Record Date; Outstanding Shares; Shares Entitled to Vote

   33

Quorum and Vote Required

   33

Recommendation of the Supervalu Board of Directors

   34

Voting by Supervalu’s Directors and Executive Officers

   35

Voting; Proxies

   35

Voting Shares Held in Street Name

   35

Abstaining from Voting

   35

How to Vote

   36

Revoking Your Proxy

   36

Other Voting Matters

   36

Voting in Person

   36

Electronic Access to Proxy Material

   37

People with Disabilities

   37

Proxy Solicitations

   37

Other Business; Adjournments or Postponements

   37

Assistance

   37

THE MERGERS

   38

Background of the Mergers

   38

Albertsons’ Reasons for the Mergers and Recommendation of Albertsons’ Board of Directors

   49

Supervalu’s Reasons for the Mergers and Recommendation of Supervalu’s Board of Directors

   53

Opinions of Albertsons’ Financial Advisors

   56

Opinion of Goldman Sachs

   56

Opinion of Blackstone

   58

Financial Analyses of Goldman Sachs and Blackstone

   60

Opinion of Houlihan Lokey

   67

Opinion of Supervalu’s Financial Advisor

   77

Interests of Albertsons’ Directors and Executive Officers in the Mergers

   85

Supervalu’s Board of Directors After the Mergers

   85

Mr. Johnston’s Employment Agreement

   85

Change of Control Severance Agreements

   86

Equity and Long-Term Incentive Awards

   88

 

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     Page

Deferred Compensation Plans

   89

Accounting Treatment

   90

Financing of the Mergers

   91

Stockholder Approval

   91

Regulatory Matters

   92

Appraisal Rights of Albertsons Stockholders

   92

Delisting and Deregistration of Albertsons Common Stock

   96

Listing, Registration, Delisting and Deregistration of New Albertsons Common Stock

   96

Federal Securities Laws Consequences; Resale Restrictions

   96

Legal Proceedings

   97

MATERIAL UNITED STATES FEDERAL INCOME TAX CONSEQUENCES

   98

Federal Income Tax Consequences of the Mergers to Albertsons Stockholders

   98

Backup Withholding

   99

THE TRANSACTION AGREEMENTS

   100

The Merger Agreement

   100

The Reorganization Merger; Initial Closing

   100

The Supervalu Merger; Closing

   100

Directors and Officers

   101

Merger Consideration

   101

Exchange of Shares

   103

Exchange Procedures

   103

Transfers of Ownership and Lost Stock Certificates

   104

Termination of Exchange Fund

   104

Limitation on Liability

   104

Representations and Warranties

   104

Covenants and Agreements

   106

Conditions to Completion of the Mergers

   112

Termination of the Merger Agreement

   113

Termination Fees

   114

Amendments, Extensions and Waivers

   115

The Separation Agreement

   116

The Separation; Closing

   116

Consideration

   117

Assets and Liabilities

   117

Representations and Warranties

   119

Tax Matters

   120

Indemnification

   120

Covenants and Agreements

   121

Employee Matters

   122

Conditions to Completion of the Separation

   123

Termination of the Separation Agreement

   124

Termination Fees

   124

Amendments and Waivers

   125

Additional Agreements

   125

The Standalone Drug Sale Agreement

   125

The Standalone Drug Sale; Closing

   126

Representations and Warranties

   126

Covenants and Agreements

   127

Conditions to Completion of the Standalone Drug Sale

   133

Termination of the Standalone Drug Sale Agreement

   134

Amendments

   134

The Coordination Agreement

   134

 

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SUPERVALU INC. AND SUBSIDIARIES UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS

   135

SUPERVALU INC. AND SUBSIDIARIES UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET

   139

SUPERVALU INC. AND SUBSIDIARIES NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET

   140

SUPERVALU INC. AND SUBSIDIARIES UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENTS OF EARNINGS

   142

SUPERVALU INC. AND SUBSIDIARIES UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF EARNINGS

   143

SUPERVALU INC. AND SUBSIDIARIES NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENTS OF EARNINGS

   144

NEW ALOHA CORPORATION CONSOLIDATED BALANCE SHEET—REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

   146

NEW ALOHA CORPORATION CONSOLIDATED BALANCE SHEET

   147

NEW ALOHA CORPORATION NOTES TO CONSOLIDATED BALANCE SHEET

   148

DESCRIPTION OF NEW ALBERTSONS CAPITAL STOCK

   150

Common Stock

   150

Preferred Stock

   150

DESCRIPTION OF SUPERVALU CAPITAL STOCK

   151

Common Stock

   151

Preferred Stock

   151

STOCK OWNERSHIP OF CERTAIN BENEFICIAL OWNERS, DIRECTORS AND EXECUTIVE OFFICERS

   152

Stock Ownership of Certain Beneficial Owners, Directors and Executive Officers of Albertsons

   152

Stock Ownership of Certain Beneficial Owners, Directors and Executive Officers of Supervalu

   154

COMPARISON OF RIGHTS OF STOCKHOLDERS

   156

Authorized Capital Stock

   156

Voting Rights

   156

Cumulative Voting

   157

Stockholders Meetings

   157

Annual and Special Meetings

   157

Quorum

   157

Notice of Stockholder Meetings

   157

Notice of Stockholder Proposals

   158

Proxy

   159

Actions by Written Consent

   159

Matters Relating to the Board of Directors

   160

Number

   160

Quorum

   160

Classification of Directors

   160

Removal of Directors

   160

Vacancies of the Board

   160

Preemptive Rights

   161

Dividends

   161

Limitation of Personal Liability of Directors

   161

Indemnification of Directors and Officers

   161

Anti-Takeover Matters

   163

 

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     Page

Rights Plans

   163

Certain Business Combination Restrictions

   163

Vote on Certain Fundamental Issues

   163

Amendments to Constituent Documents

   164

LEGAL MATTERS

   166

EXPERTS

   166

STOCKHOLDER PROPOSALS

   167

WHERE YOU CAN FIND MORE INFORMATION

   168

Supervalu SEC Filings

   168

Albertsons SEC Filings

   169

ANNEXES

  

Agreement and Plan of Merger

   A

Proposed Amendment to Albertsons’ Restated Certificate of Incorporation

   B

Opinion of Goldman, Sachs & Co.

   C

Opinion of The Blackstone Group L.P.

   D

Opinion of Houlihan Lokey Howard & Zukin

   E

Opinion of Lazard Frères & Co. LLC

   F

Section 262 of the General Corporation Law of the State of Delaware

   G

 

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QUESTIONS AND ANSWERS ABOUT THE SPECIAL MEETINGS

The following questions and answers briefly address some commonly asked questions about the special meetings. They may not include all the information that is important to you. Albertsons and Supervalu urge you to read this entire joint proxy statement/prospectus carefully, including the annexes and the other documents to which we have referred you. We have included page references in certain parts of this summary to direct you to a more detailed description of each topic presented elsewhere in this joint proxy statement/prospectus.

 

Q: Why am I receiving this joint proxy statement/prospectus?

 

A: You are receiving this joint proxy statement/prospectus as a stockholder of one or both of Albertsons and Supervalu. Albertsons has agreed to be acquired by a consortium of investors including Supervalu, the Cerberus group and CVS through a series of transactions. In connection with these transactions, Albertsons and Supervalu have entered into a merger agreement that is described in this joint proxy statement/prospectus. A copy of the merger agreement is attached to this joint proxy statement/prospectus as Annex A.

In order to complete the transactions contemplated by the merger agreement, among other things, Supervalu’s and Albertsons’ stockholders must vote on, and approve, proposals that are described in this joint proxy statement/prospectus. Supervalu and Albertsons will hold separate special meetings of their respective stockholders to seek to obtain these approvals.

This joint proxy statement/prospectus contains important information about the merger agreement, the transactions contemplated by the merger agreement, and the special meetings of the respective stockholders of Albertsons and Supervalu, which you should read carefully. The enclosed proxy materials allow you to grant a proxy to vote your shares without attending your respective company’s special meeting in person.

Your vote is very important. We encourage you to submit your proxy as soon as possible.

 

Q: What are the specific proposals for which I am being asked to vote?

 

A: Albertsons stockholders are being asked to adopt the merger agreement. A copy of the merger agreement is attached to this joint proxy statement/prospectus as Annex A.

Albertsons stockholders are also being asked to adopt the charter amendment, which would provide for appraisal rights under Delaware law to holders of shares of Albertsons common stock in connection with the reorganization merger if the Supervalu merger is completed.

The approval of the proposal to adopt the merger agreement by Albertsons stockholders is a condition to the obligations of the parties to complete the transactions contemplated by the merger agreement. See “The Transaction Agreements—The Merger Agreement—Conditions to Completion of the Mergers” beginning on page 112.

Supervalu stockholders are being asked to authorize the issuance of the Supervalu common stock in connection with the Supervalu merger. The approval of this proposal by the Supervalu stockholders is a condition to the obligations of the parties to complete the transactions contemplated by the merger agreement. See “The Transaction Agreements—The Merger Agreement—Conditions to Completion of the Mergers” beginning on page 112.

 

Q: What are the positions of the Albertsons and Supervalu boards of directors regarding the merger agreement and the proposals relating to the adoption of the merger agreement, the charter amendment, and the issuance of Supervalu common stock?

 

A: Both boards of directors have approved the merger agreement and determined that it is advisable to enter into the merger agreement.

The Albertsons board of directors recommends that the Albertsons stockholders vote FOR the proposal to adopt the merger agreement, and FOR the proposal to adopt the charter amendment, at the Albertsons special meeting.

 

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The Supervalu board of directors recommends that the Supervalu stockholders vote FOR the proposal to authorize the issuance of Supervalu common stock in connection with the Supervalu merger at the Supervalu special meeting.

See “The Mergers—Albertsons’ Reasons for the Mergers and Recommendation of Albertsons’ Board of Directors” beginning on page 49 and “The Mergers—Supervalu’s Reasons for the Mergers and Recommendation of Supervalu’s Board of Directors” beginning on page 53.

 

Q: When do you expect to complete the mergers?

 

A: If the proposals being presented to the Albertsons stockholders and the Supervalu stockholders at their respective special meetings are approved, we expect to complete the mergers as soon as possible after the satisfaction of the other conditions to their completion. There may be a substantial period of time between the approval of the proposals by stockholders at the special meetings and the completion of the mergers. We currently anticipate that the mergers will be completed in the second quarter of calendar year 2006, but the transactions could be delayed if, among other things, the necessary approvals are not obtained by that time. See “The Transaction Agreements—The Merger Agreement—The Supervalu Merger; Closing” on page 100.

 

Q: When and where are the special meetings?

 

A: The Albertsons special meeting will be held at the offices of Sullivan & Cromwell LLP, 125 Broad Street, 37th Floor, New York, New York 10004-2498, on May 30, 2006, at 9:00 a.m., Eastern Daylight Time.

The Supervalu special meeting will be held at the offices of Wachtell, Lipton, Rosen & Katz, 51 West 52nd Street, New York, New York 10019, on May 30, 2006, at 1:00 p.m., Eastern Daylight Time.

 

Q: What should I do now?

 

A: You should read this joint proxy statement/prospectus carefully, including the annexes, and return your completed, signed and dated proxy card(s) by mail in the enclosed postage-paid envelope or, if available, by submitting your proxy by telephone or over the Internet as soon as possible so that your shares will be represented and voted at your special meeting.

 

Q: Should I send in my Albertsons stock certificates now?

 

A: NO. PLEASE DO NOT SEND ANY STOCK CERTIFICATES WITH YOUR PROXY CARD(S).

If the mergers are completed, Albertsons stockholders will be sent written instructions for sending in their stock certificates. See “The Transaction Agreements—The Merger Agreement—Exchange of Shares” on page 103. Supervalu stockholders will not need to send in their stock certificates.

 

Q: If I am going to attend my special meeting, should I still return my proxy card(s)?

 

A: Yes. Returning your signed and dated proxy card(s) or submitting your proxy by telephone or over the Internet, if available, ensures that your shares will be represented and voted at your special meeting. See “The Albertsons Special Meeting—How to Vote” beginning on page 30 and “The Supervalu Special Meeting—How to Vote” beginning on page 36. If you plan to attend your special meeting to vote in person, you should also follow the advance registration instructions in this joint proxy statement/prospectus. See “The Albertsons Special Meeting—Other Voting Matters—Voting in Person” beginning on page 31 and “The Supervalu Special Meeting—Other Voting Matters—Voting in Person” beginning on page 36.

 

Q: If my shares are held in “street name,” will my broker automatically vote my shares?

 

A: No. If you hold shares of common stock in a stock brokerage account or through a bank, broker or other nominee, or, in other words, in street name, you should follow the voting instructions provided by your bank, broker, or other nominee. For more information, see “The Albertsons Special Meeting—Voting; Proxies—Voting Shares Held in Street Name” beginning on page 29 and “The Supervalu Special Meeting—Voting; Proxies—Voting Shares Held in Street Name” beginning on page 35.

 

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Q: Can I change my vote?

 

A: You can change or revoke your proxy at any time before its exercise by submitting a written notice to the addresses specified in this joint proxy statement/prospectus, submitting your proxy again over the Internet or by telephone, or attending your special meeting and voting in person. If your shares are held in street name, you will need to contact your bank, broker or other nominee to revoke your proxy.

 

Q: What will happen if I abstain from voting or fail to instruct my bank, broker or other nominee?

 

A: If you are an Albertsons stockholder and you abstain from voting, that will have the same effect as a vote against the adoption of the merger agreement and the charter amendment. If you are a Supervalu stockholder and you abstain from voting, your vote will not be counted for purposes of approving the issuance of Supervalu common stock.

 

Q: What does it mean if I receive multiple proxy cards?

 

A: Your shares may be registered in more than one account, such as brokerage accounts and 401(k) accounts. It is important that you complete, sign, date and return each proxy card you receive, or, if available, submit your proxy using the telephone or the Internet as described in the instructions included with your proxy card(s).

 

Q: Who can answer my questions about the special meetings or the mergers?

 

A: If you have any questions about the mergers or your special meeting, need assistance in voting your shares, or need additional copies of this joint proxy statement/prospectus or the enclosed proxy card(s), you should contact our proxy solicitors:

If you are an Albertsons stockholder:

Georgeson Shareholder Communications, Inc.

17 State Street, 10th Floor

New York, New York 10004

Telephone: (800) 868-1359

If you are a Supervalu stockholder:

Innisfree M&A Incorporated

501 Madison Avenue

New York, New York 10022

Telephone: (888) 750-5834

 

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SUMMARY

This summary of the material information contained in this joint proxy statement/prospectus may not include all the information that is important to you. To understand the proposed mergers and related transactions fully, and for a more detailed description of the terms and conditions of the mergers and other transactions, you should read this entire joint proxy statement/prospectus and the documents to which we have referred you. See “Where You Can Find More Information” beginning on page 168. We have included page references parenthetically in this summary to direct you to a more detailed description of each topic presented in this summary.

Overview of the Transactions

On January 22, 2006, Albertsons, Supervalu, CVS Corporation (which is referred to as CVS), and a consortium of investors including Cerberus Capital Management, L.P. (which is referred to as Cerberus), Kimco Realty Corporation, Lubert-Adler Management, Inc., Klaff Realty, LP, and Schottenstein Stores Corporation (which investors, together with Cerberus, are collectively referred to as the Cerberus group) entered into a series of agreements providing for the sale of Albertsons to Supervalu, CVS, and the Cerberus group. As a result of a series of transactions more fully described below, Albertsons stockholders will ultimately be entitled to receive $20.35 in cash and 0.182 shares of Supervalu common stock for each share of Albertsons common stock that they held before the transactions.

These agreements, which together are referred to as the transaction agreements, provide for the following sequence of steps, which the parties intend to carry out substantially simultaneously:

 

    First, Albertsons will become a subsidiary of New Albertson’s, Inc. (formerly known as New Aloha Corporation), a newly formed company which we refer to as New Albertsons.* This will be effected by a merger of New Diamond Sub, Inc., a wholly owned subsidiary of New Albertsons which we refer to as New Diamond Sub, into Albertsons. In this transaction, which we refer to as the reorganization merger, stockholders of Albertsons will receive one share of New Albertsons common stock in exchange for each share of Albertsons common stock that they hold.

 

    After the reorganization merger, Albertsons will be converted to a limited liability company, which we refer to as Albertsons LLC, and a series of reorganization transactions will occur. The result of these transactions, which we refer to collectively as the Albertsons reorganization, will be that Albertsons LLC and its subsidiaries will hold substantially all of the assets of Albertsons’ historical standalone drug store and non-core supermarket businesses, and certain liabilities of Albertsons’ historical businesses, while New Albertsons and its other subsidiaries will hold substantially all of the assets and liabilities of Albertsons’ core supermarket business, which we refer to as the core business.

 

    After the Albertsons reorganization, CVS will purchase substantially all of the assets and assume specified liabilities of the standalone drug store business (which we also refer to as the standalone drug business) from New Albertsons, Albertsons LLC and certain of their subsidiaries. We refer to this transaction as the standalone drug sale. The cash proceeds of the standalone drug sale paid to Albertsons LLC will be transferred to New Albertsons.

 

    Concurrently with the standalone drug sale, the Cerberus group, via AB Acquisition LLC, a newly formed entity which we refer to as Cerberus Newco, will purchase substantially all of Albertsons’ non-core supermarket business (which we also refer to as the non-core business), including the equity interests in Albertsons LLC, and will assume certain liabilities related to the non-core business. We refer to this transaction as the non-core sale, and we refer to the non-core sale and the Albertsons reorganization collectively as the separation.

* We refer to this company as New Albertsons throughout most of this joint proxy statement/prospectus. However, we refer to it as New Aloha Corporation in the audited financial statements of New Aloha Corporation on pages 146-149, and in the opinions of our financial advisors in Annexes C, D, E and F, each of which was produced prior to New Albertsons’ name change.

 

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    Finally, Emerald Acquisition Sub, Inc., a wholly owned subsidiary of Supervalu which we refer to as Acquisition Sub, will merge into New Albertsons. In this merger, which we refer to as the Supervalu merger, New Albertsons will become a wholly owned subsidiary of Supervalu, and each outstanding share of New Albertsons common stock will be converted into the right to receive $20.35 in cash and 0.182 shares of Supervalu common stock.

We refer to the transactions outlined above collectively as the transactions, and we refer to the reorganization merger and Supervalu merger together as the mergers. The transactions are subject to the terms and conditions of the transaction agreements, as more fully described below. As a result of these transactions Supervalu will acquire net assets and liabilities, excluding debt assumed, of approximately $17.7 billion. The purchase price comprises assets with an estimated fair market value of approximately $24.0 billion, including goodwill of approximately $4.9 billion, and liabilities with an estimated fair market value of approximately $6.3 billion. The assets acquired are inclusive of $4.9 billion of cash held by New Albertsons as a result of the simultaneous sale of the standalone drug and non-core businesses. For more information, see “SUPERVALU INC. and Subsidiaries Unaudited Pro Forma Condensed Combined Financial Statements,” beginning on page 135.

The consideration to be paid in the Supervalu merger values Albertsons taken as a whole, and is not subject to adjustment based on the allocation of assets and liabilities among Supervalu, CVS, and the Cerberus group. Furthermore, Albertsons’ stockholders are being asked only to adopt the merger agreement and the charter amendment, and are not voting on the non-core sale or the standalone drug sale. Therefore, we have not included in this joint proxy statement/prospectus separate unaudited historical financial information of the non-core business or the standalone drug business. Neither Albertsons nor Supervalu views this information as material to Albertsons’ stockholders’ evaluation of the merger consideration or their decision to vote to adopt the merger agreement or the charter amendment.

The diagram on the following page illustrates the basic structure of the transactions.

 

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LOGO

 

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The Mergers (beginning on page 38)

On January 22, 2006, the boards of directors of Albertsons and Supervalu each approved the merger agreement, which contemplates the transactions described above in “—Overview of the Transactions.” We encourage you to read the merger agreement, which is attached as Annex A to this joint proxy statement/prospectus, because it governs and sets forth the terms of the mergers.

Merger Consideration

Holders of Albertsons common stock (other than Albertsons, Supervalu and dissenting Albertsons stockholders who properly exercise their appraisal rights in connection with the reorganization merger, if available) will ultimately be entitled to receive, upon completion of the Supervalu merger, for each share of New Albertsons common stock that they hold:

 

    $20.35 in cash, without interest; and

 

    0.182 shares of Supervalu common stock.

As a result, Supervalu expects to pay approximately $8.6 billion in cash and to issue approximately 76.7 million shares of Supervalu common stock in the Supervalu merger, as described more fully under “SUPERVALU INC. and Subsidiaries Unaudited Pro Forma Condensed Combined Financial Statements” beginning on page 135. We expect that former Albertsons stockholders will own approximately 35% of the then-outstanding shares of Supervalu common stock on a fully diluted basis, based on the number of shares of Supervalu and Albertsons common stock outstanding on April 24, 2006. Based on amounts outstanding as of November 3, 2005, approximately $6.5 billion of Albertsons debt will remain outstanding as debt of Supervalu or of its subsidiaries (including New Albertsons). We refer to the cash and stock consideration to be paid to New Albertsons stockholders by Supervalu as the merger consideration.

For more information on the merger consideration, see “The Transaction Agreements—The Merger Agreement—Merger Consideration” beginning on page 101.

Supervalu will fund the cash portion of the merger consideration from cash on hand (approximately $1.2 billion), borrowings under new credit facilities (approximately $2.0 billion), cash proceeds from the assumed early settlement of the Corporate Units (approximately $1.15 billion), and the proceeds from the standalone drug sale and the non-core sale (approximately $3.9 billion and $350 million, respectively). The cash portion of the merger consideration is fixed and will not depend on the amounts received from CVS and the Cerberus group in connection with the standalone drug sale and the separation.

The Separation (beginning on page 116) and Standalone Drug Sale (beginning on page 125)

The Separation

The separation is governed by the Purchase and Separation Agreement, which we refer to as the separation agreement, among Albertsons, New Albertsons, Supervalu, and Cerberus Newco. The separation agreement provides for the reorganization of the Albertsons businesses, with the result that New Albertsons will generally hold the assets and liabilities of the core business, and Albertsons LLC will generally hold the assets and liabilities of the non-core and standalone drug businesses. Substantially simultaneously with the sale of the standalone drug business to CVS, Cerberus Newco will purchase substantially all of the assets of the non-core business, including the equity interests in Albertsons LLC, and will assume certain liabilities related to the non-core business. The consideration for this purchase will be $350 million in cash, payable to New Albertsons, and Cerberus Newco will pay New Albertsons an additional $625 million in cash in respect of the assumption of certain liabilities by New Albertsons.

The separation agreement contains terms relating to tax matters, employee matters, indemnification, and other agreements between the parties. Supervalu and the Cerberus group will also enter into a transition services

 

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agreement, under which Supervalu and New Albertsons will provide certain services to the non-core stores for a period after the closing, and a cross-licensing agreement, which will allow each party to use various trade names owned by the other for a limited period. Albertsons LLC is expected to pay Supervalu and New Albertsons fees of up to $360 million over two years under the transition services agreement, subject to possible adjustments to reflect decreases in the number of stores operated by Albertsons LLC. There are no fees associated with the cross-licensing agreement.

We encourage you to read the separation agreement, which is filed with the SEC as an exhibit to the Registration Statement on Form S-4 containing this joint proxy statement/prospectus.

The Standalone Drug Sale

The standalone drug sale is governed by the Asset Purchase Agreement, which we refer to as the standalone drug sale agreement, among CVS, CVS Pharmacy, Inc., Albertsons, Supervalu, New Albertsons, and certain other subsidiaries of Albertsons. The standalone drug sale agreement provides that CVS will purchase the assets of the standalone drug business, including the related owned real estate, for $3.93 billion in cash, and will assume certain liabilities related to that business. The standalone drug sale agreement contains terms relating to tax matters, employee matters, indemnification, and other agreements among the parties. Supervalu and CVS will also enter into transition services agreements under which Supervalu, New Albertsons, and CVS will provide certain services to one another for a limited period after the closing. CVS is expected to pay Supervalu fees of $3 million for services to be provided by New Albertsons, and to provide services relating to the La Habra distribution center at cost.

We encourage you to read the standalone drug sale agreement, which was filed with the SEC as an exhibit to the Registration Statement on Form S-4 containing this joint proxy statement/prospectus.

The Charter Amendment

The Albertsons board of directors has approved an amendment to Albertsons’ restated certificate of incorporation, which we refer to as the charter amendment. If the charter amendment is adopted at the Albertsons special meeting and becomes effective and the Supervalu merger occurs, holders of Albertsons common stock will be entitled to appraisal rights in connection with the reorganization merger, subject to compliance with the procedures described in more detail in this joint proxy statement/prospectus. If the charter amendment is not adopted at the Albertsons special meeting, or the Supervalu merger does not occur, holders of Albertsons stock will not have appraisal rights in connection with the reorganization merger. For more information, see “The Albertsons Special Meeting—Item 2—Amendment to the Restated Certificate of Incorporation to Provide for Appraisal Rights in the Reorganization Merger,” beginning on page 28, and the text of the charter amendment, which is attached to this joint proxy statement/prospectus as Annex B.

Opinions of Our Financial Advisors (beginning on page 56 for Albertsons and 77 for Supervalu)

Opinions of Albertsons’ Financial Advisors. Each of Goldman, Sachs & Co., which we refer to as Goldman Sachs, The Blackstone Group L.P., which we refer to as Blackstone, and Houlihan Lokey Howard & Zukin, which we refer to as Houlihan Lokey, delivered its oral opinion, subsequently confirmed in writing, to the board of directors of Albertsons to the effect that, as of January 22, 2006, and based upon and subject to the factors and assumptions set forth in their respective opinions, the consideration to be received by the holders of shares of New Albertsons common stock (formerly the holders of shares of Albertsons common stock) in the Supervalu merger pursuant to the merger agreement was fair, from a financial point of view, to such holders.

The full text of each of the written opinions of Goldman Sachs, Blackstone and Houlihan Lokey, each dated January 22, 2006, which set forth assumptions made, procedures followed, matters considered and limitations on the reviews undertaken in connection with their respective opinions, are attached to this joint proxy statement/prospectus as Annexes C, D, and E, respectively. Summaries of the opinions of Goldman Sachs, Blackstone and

 

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Houlihan Lokey are set forth in this joint proxy statement/prospectus and are qualified by reference to the full text of such opinions, which Albertsons urges you to read in their entirety. Goldman Sachs, Blackstone and Houlihan Lokey provided their opinions for the information and assistance of the Albertsons board of directors in connection with its consideration of the mergers. These opinions are addressed to the Albertsons board of directors and are one of many factors considered by the Albertsons board of directors in deciding to approve the merger agreement and the transactions. The opinions of Goldman Sachs, Blackstone and Houlihan Lokey do not address the merits of the underlying decision by Albertsons to engage in the transactions and were not intended to and do not constitute a recommendation to any stockholder as to how the stockholder should vote with respect to the proposals being submitted to the Albertsons stockholders.

Opinion of Supervalu’s Financial Advisor. In deciding to approve the merger agreement, the Supervalu board of directors considered the opinion of Supervalu’s financial advisor, Lazard Frères & Co. LLC, which we refer to as Lazard. The Supervalu board of directors received a written opinion from Lazard to the effect that, as of January 22, 2006, and based upon and subject to the various considerations, assumptions and limitations described in its opinion, the merger consideration to be paid by Supervalu in the Supervalu merger, after giving effect to the other transactions contemplated by the merger agreement and the transaction agreements, was fair, from a financial point of view, to Supervalu. The full text of Lazard’s written opinion, which sets forth the procedures followed, assumptions made, matters considered and limitations on the review undertaken, is attached to this joint proxy statement/prospectus as Annex F. A summary of Lazard’s opinion is set forth in this joint proxy statement/prospectus and is qualified by reference to the full text of the opinion, which Supervalu urges you to read in its entirety. Lazard provided its opinion for the information and assistance of the Supervalu board of directors in connection with its consideration of the Supervalu merger. Lazard’s opinion is addressed to the Supervalu board of directors and is one of many factors considered by the Supervalu board of directors in deciding to approve the merger agreement and the transactions. Lazard’s opinion does not address the merits of the underlying decision by Supervalu to engage in the transactions and was not intended to and does not constitute a recommendation to any stockholder as to how the stockholder should vote with respect to the proposals being submitted to the Supervalu stockholders.

Interests of Albertsons’ Directors and Executive Officers in the Mergers (beginning on page 85)

When considering the recommendation of the Albertsons board of directors with respect to the merger agreement and the charter amendment, Albertsons stockholders should be aware that some directors and executive officers of Albertsons have interests in the transactions that may be different from, or be in addition to, their interests as Albertsons stockholders and the interests of Albertsons stockholders generally. The Albertsons board of directors was aware of these interests during its deliberations on the merits of the mergers and in deciding to recommend that you vote for the adoption of the merger agreement and the charter amendment at the Albertsons special meeting. For a more detailed discussion of these interests, see “Risk Factors—Risks Relating to the Mergers—Certain directors and executive officers of Albertsons have interests and arrangements that are different from, or in addition to, other Albertsons stockholders” beginning on page 22 and “The Mergers—Interests of Albertsons Directors and Executive Officers in the Mergers” beginning on page 85.

Appraisal Rights (beginning on page 92)

Albertsons. If the charter amendment is adopted and becomes effective and the Supervalu merger occurs, holders of Albertsons common stock will be entitled to appraisal rights in connection with the reorganization merger if they comply with procedures described in more detail in this joint proxy statement/prospectus. If the charter amendment is not adopted, Albertsons stockholders will not have any appraisal rights in connection with either of the mergers.

Provided that the charter amendment is adopted and becomes effective and the Supervalu merger occurs, holders of Albertsons common stock who do not vote in favor of the adoption of the merger agreement and who

 

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do not wish to accept the consideration payable in the reorganization merger may seek, under Section 262 of the General Corporation Law of the State of Delaware, or the DGCL, judicial appraisal of the fair value of their shares of Albertsons common stock by the Delaware Court of Chancery. This value could be more than, less than or the same as the value of the merger consideration to be paid for each share of New Albertsons common stock in the Supervalu merger. Failure to strictly comply with all the procedures required by Section 262 of the DGCL will result in a loss of the right to appraisal.

Merely voting against the adoption of the merger agreement will not preserve the right of Albertsons stockholders to appraisal under Delaware law; rather, a stockholder wishing to demand appraisal rights must deliver to Albertsons, before the special meeting, a separate written demand for appraisal of such stockholder’s shares and must hold such shares continuously through the initial effective time. Also, because a submitted proxy not marked “against” or “abstain” will be voted “for” the proposal to adopt the merger agreement, the submission of a proxy not marked “against” or “abstain” will result in the waiver of appraisal rights. Albertsons stockholders who hold shares in the name of a bank, broker or other nominee must instruct their nominee to take the steps necessary to enable them to demand appraisal for their shares.

Holders of New Albertsons common stock will not be entitled to appraisal rights in connection with the Supervalu merger. Accordingly, holders of Albertsons common stock who wish to exercise their rights to obtain a judicial appraisal of the fair value of their shares of Albertsons common stock should do so in connection with the reorganization merger, if available, following the procedures described in this joint proxy statement/prospectus. There will not be any opportunity to exercise appraisal rights in connection with the Supervalu merger.

Annex G to this joint proxy statement/prospectus contains the full text of Section 262 of the DGCL, which relates to the rights of appraisal. Albertsons encourages you to read these provisions carefully and in their entirety. For additional information on the appraisal rights that may be available in connection with the reorganization merger, including the procedures that must be followed to exercise these appraisal rights, see “The Mergers—Appraisal Rights of Albertsons Stockholders” beginning on page 92.

Supervalu. Under Delaware law, holders of Supervalu common stock are not entitled to appraisal rights in connection with the issuance of Supervalu common stock in connection with the Supervalu merger.

Conditions to Completion of the Mergers (beginning on page 112)

Completion of the mergers depends on a number of conditions being satisfied or waived, including the following conditions that apply to both Albertsons and Supervalu:

 

    the adoption by Albertsons’ stockholders of the merger agreement, and the approval by Supervalu’s stockholders of the issuance of Supervalu shares in connection with the Supervalu merger;

 

    the effectiveness of the registration statement on Form S-4 of which this joint proxy statement/prospectus is a part;

 

    the approval for listing on the NYSE of the shares of Supervalu stock to be issued in the Supervalu merger;

 

    the expiration of the waiting period applicable to the mergers under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, which we refer to as the HSR Act (which waiting period expired on March 13, 2006, without the imposition by the Federal Trade Commission, which we refer to as the FTC, or the Antitrust Division of the U.S. Department of Justice, which we refer to as the Antitrust Division, of any conditions to or restrictions on the consummation of the transactions);

 

    the absence of legal restraints that would prevent the completion of the mergers;

 

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    the accuracy of the representations and warranties of the other party in the merger agreement, except as would not have a material adverse effect;

 

    the performance in all material respects of the other party’s obligations under the merger agreement; and

 

    the receipt of the required closing certificate executed by officers of the other party.

Completion of the mergers also depends on the satisfaction of all conditions to the separation and the standalone drug sale. For more information, see “The Transaction Agreements—The Merger Agreement— Conditions to Completion of the Mergers” beginning on page 112, “The Transaction Agreements—The Separation Agreement—Conditions to Completion of the Separation” beginning on page 123, and “The Transaction Agreements—The Standalone Drug Sale Agreement—Conditions to Completion of the Standalone Drug Sale” beginning on page 133.

Termination of the Merger Agreement and Termination Fees (beginning on page 113)

The merger agreement may be terminated by the mutual written consent of Supervalu and Albertsons, or by either Supervalu or Albertsons under certain specified circumstances, including uncured material breaches of the merger agreement. Upon termination of the merger agreement under certain circumstances, Supervalu may be required to pay Albertsons a termination fee of $250 million if the termination is for antitrust reasons, or $135 million otherwise, and Albertsons may be required to pay Supervalu a termination fee of $276 million. Cerberus Newco will be entitled to receive 15% of any termination fee that Supervalu receives from Albertsons, and will in most circumstances be responsible for $70 million of the $250 million termination fee payable by Supervalu to Albertsons if the merger is terminated for antitrust reasons. In addition, if Supervalu, Albertsons, or New Albertsons terminates the separation agreement because of a breach by Cerberus Newco, Cerberus Newco must pay a termination fee of $100 million, two-thirds of which is payable to Albertsons and one-third to Supervalu. See “The Transaction Agreements—The Merger Agreement—Termination of the Merger Agreement” beginning on page 113, “The Transaction Agreements—The Merger Agreement—Termination Fees” beginning on page 114 and “The Transaction Agreements—The Separation Agreement—Termination Fees” on page 124.

Material United States Federal Income Tax Consequences (beginning on page 98)

The Supervalu merger will be fully taxable to Albertsons stockholders for U.S. federal income tax purposes. In general, Albertsons stockholders will recognize capital gain or loss measured by the difference, if any, between (i) the sum of the fair market value of the Supervalu stock and cash they will receive in the Supervalu merger and (ii) their adjusted tax basis in their Albertsons common stock.

Tax matters are complicated, and the tax consequences of the transactions to each Albertsons stockholder will depend on the facts of each stockholder’s situation. Albertsons stockholders are urged to read carefully the discussion in the section entitled “Material United States Federal Income Tax Consequences” beginning on page 98 and to consult their own tax advisors for a full understanding of the tax consequences of their participation in the transactions.

Risks

In evaluating the merger agreement, the charter amendment, or the issuance of shares of Supervalu common stock in connection with the Supervalu merger, you should carefully read this joint proxy statement/prospectus and especially consider the factors discussed in the section entitled “Risk Factors” beginning on page 20.

Legal Proceedings (beginning on page 97)

As of the date of this joint proxy statement/prospectus, Supervalu and Albertsons are aware of one purported class action lawsuit that has been filed against Albertsons and its board of directors in connection with the

 

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transactions. Among other things, the complaint in the lawsuit requests an injunction to prevent the closing of the mergers. Albertsons believes that this lawsuit is without merit and intends to defend it vigorously.

Comparison of Rights of Stockholders (beginning on page 156)

As a result of the reorganization merger, the holders of Albertsons common stock will become holders of New Albertsons common stock. Similarly, as a result of the Supervalu merger, the holders of New Albertsons common stock will become holders of Supervalu common stock. Albertsons stockholders will have different rights as stockholders of Supervalu than as stockholders of Albertsons due to differences between the certificates of incorporation and by-laws of Albertsons and Supervalu. Because the certificates of incorporation and by-laws of Albertsons and New Albertsons are substantially identical (subject to certain exceptions described in “Comparison of Rights of Stockholders” beginning on page 156), and because both Albertsons and New Albertsons are governed by Delaware law, stockholders of New Albertsons will have substantially identical rights to those of stockholders of Albertsons.

For a summary of the material differences between the rights of Albertsons stockholders, New Albertsons stockholders, and Supervalu stockholders, see “Comparison of Rights of Stockholders” beginning on page 156.

Information about Albertsons

Albertsons, a Delaware corporation, is one of the world’s largest food and drug retailers. Albertsons’ divisions and subsidiaries operate approximately 2,500 stores in 37 states across the United States and employ approximately 240,000 associates. Its banners include Albertsons, Acme, Shaw’s, Jewel-Osco, Sav-on Drugs, Osco Drug, and Star Market, as well as Super Saver and Bristol Farms, which are operated independently. Albertsons’ general offices are located at 250 Parkcenter Boulevard, Boise, Idaho 83706 and its telephone number is (208) 395-6200. Information about Albertsons is available on the Internet at www.albertsons.com.

Information about Supervalu

Supervalu, a Delaware corporation, conducts retail operations through 1,381 stores, including licensed Save-A-Lot extreme value stores, excluding Deal’s. Supervalu also provides food distribution and related logistics support services across the United States retail grocery channel. Supervalu serves as the primary grocery supplier to approximately 2,240 retail food stores in 48 states, in addition to its own regional banner store network. Supervalu is headquartered in Eden Prairie, Minnesota, and has approximately 50,000 employees. Supervalu’s general offices are located at 11840 Valley View Road, Eden Prairie, Minnesota 55344 and its telephone number is (952) 828-4000. Information about Supervalu is available on the Internet at www.supervalu.com.

Information about New Albertsons

New Albertsons is a Delaware corporation newly formed for the purpose of effecting the mergers. New Albertsons is a wholly owned subsidiary of Albertsons, has no assets, and has conducted no business operations as of the date of this joint proxy statement/prospectus. Upon completion of the mergers, New Albertsons will be a wholly owned subsidiary of Supervalu and will conduct the core business.

 

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FINANCIAL SUMMARY

Albertsons Market Price Data and Dividends

Albertsons common stock is traded on the NYSE and the Pacific Stock Exchange under the symbol “ABS.” The following table shows for the periods indicated the high and low sales prices for Albertsons common stock as reported on the consolidated tape of the NYSE.

 

      Price Range of Common Stock

Fiscal Year Ended

       High            Low    

January 30, 2003:

     

First Quarter

   $ 35.49    $ 26.88

Second Quarter

     35.49      26.51

Third Quarter

     28.66      22.14

Fourth Quarter

     24.60      18.85

January 29, 2004:

     

First Quarter

     21.71      17.76

Second Quarter

     21.91      17.91

Third Quarter

     23.65      18.40

Fourth Quarter

     24.19      19.50

February 3, 2005:

     

First Quarter

     25.33      21.57

Second Quarter

     27.75      22.43

Third Quarter

     25.80      22.30

Fourth Quarter

     25.93      22.35

February 2, 2006:

     

First Quarter

     23.53      19.26

Second Quarter

     22.39      19.85

Third Quarter

     26.51      19.75

Fourth Quarter

     25.48      19.88

The last reported sales prices of Albertsons common stock on the NYSE on September 1, 2005, January 20, 2006, and April 27, 2006, were $20.73, $24.11, and $25.28, respectively. September 1, 2005, was the last full trading day before Albertsons issued a public announcement that it was considering its strategic alternatives. January 20, 2006, was the last full trading day prior to the public announcement of the execution of the transaction agreements. April 27, 2006, was the last full trading day prior to the filing of this joint proxy statement/prospectus with the SEC.

Albertsons has paid cash dividends on its common stock since 1959. Albertsons pays these dividends at the discretion of its board of directors. The continuation of these payments, the amount of such dividends and the form in which the dividends are paid (cash or stock) depend upon many factors, including the results of operations and the financial condition of Albertsons. Albertsons has paid quarterly dividends of $0.19 per share each quarter for the last five years. Under the merger agreement, between the date of the merger agreement and the closing date of the Supervalu merger, Albertsons is permitted to pay regular quarterly dividends not in excess of $0.19 per share. Supervalu and Albertsons have also agreed to coordinate with each other regarding the declaration and payment of dividends prior to the closing of the mergers so that holders of Supervalu and Albertsons shares shall not receive two dividends, or fail to receive any, in any given quarter with respect to their Supervalu and Albertsons shares. While Albertsons anticipates that it would continue to pay dividends at the current level if the mergers were not consummated, it cannot assure that it would continue to pay dividends at this level, or at all.

 

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Supervalu Market Price Data and Dividends

Supervalu common stock is traded on the NYSE under the symbol “SVU.” The following table shows for the periods indicated the high and low sales prices for Supervalu common stock as reported on the consolidated tape of the NYSE.

 

     Price Range of Common Stock

Fiscal Year Ended

       High            Low    

February 22, 2003:

     

First Quarter

   $ 30.81    $ 24.60

Second Quarter

     28.94      19.18

Third Quarter

     21.59      14.75

Fourth Quarter

     18.12      14.01

February 28, 2004:

     

First Quarter

     22.74      12.60

Second Quarter

     24.99      20.80

Third Quarter

     26.29      23.39

Fourth Quarter

     29.95      25.20

February 26, 2005:

     

First Quarter

     32.49      27.25

Second Quarter

     31.99      25.70

Third Quarter

     32.59      26.59

Fourth Quarter

     35.15      31.30

February 25, 2006:

     

First Quarter

     34.72      30.64

Second Quarter

     35.88      30.90

Third Quarter

     33.93      29.55

Fourth Quarter

     34.75      30.60

The last reported sales prices of Supervalu common stock on the NYSE on September 1, 2005, January 20, 2006, and April 27, 2006, were $34.69, $31.85, and $28.89, respectively. September 1, 2005, was the last full trading day before Albertsons issued a public announcement that it was considering its strategic alternatives. January 20, 2006, was the last full trading day prior to the companies’ public announcement of the mergers. April 27, 2006, was the last full trading day prior to the filing of this joint proxy statement/prospectus with the SEC.

The Supervalu board of directors has the power to determine the amount and frequency of the payment of dividends. Decisions regarding whether or not to pay dividends and the amount of any dividends are based on compliance with the DGCL, any applicable restrictions in Supervalu’s restated certificate of incorporation, and agreements governing Supervalu’s indebtedness, and on earnings, cash requirements, results of operations, cash flows, financial condition, and other factors that the board of directors considers important. Supervalu paid dividends of $0.145 per share in the first quarter of fiscal year 2005, $0.1525 per share in the second through fourth quarters of fiscal 2005 and the first quarter of fiscal 2006, and $0.1625 per share in the second and third quarters of fiscal 2006. While Supervalu intends to pay dividends at a level consistent with past practices for the foreseeable future, it cannot assure that it will continue to pay dividends at this level, or at all. Supervalu and Albertsons have agreed to coordinate with each other regarding the declaration and payment of dividends prior to the closing of the mergers so that holders of Supervalu and Albertsons shares shall not receive two dividends, or fail to receive any, in any given quarter with respect to their Supervalu and Albertsons shares.

 

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Selected Historical Financial Data of Albertsons

The following table shows selected historical financial data for Albertsons. The data for each of the five fiscal years were derived from Albertsons’ audited consolidated financial statements. This information is only a summary, and you should read it together with Albertsons’ historical financial statements and related notes contained in the annual reports and other information that Albertsons has filed with the SEC and incorporated by reference into this joint proxy statement/prospectus. See “Where You Can Find More Information” beginning on page 168.

 

(Dollars in millions, except

per share data)

  52 Weeks
February 2,
2006
  53 Weeks
February 3,
2005
  52 Weeks
January 29,
2004
  52 Weeks
January 30,
2003
  52 Weeks
January 31,
2002

Statement of Earnings Data

         

Net sales

  $ 40,358   $ 39,810   $ 35,019   $ 35,316   $ 36,294

Earnings from continuing operations

    462     474     556     866     487

Net earnings

    446     444     556     485     501

Earnings per common share from continuing operations:

         

Basic

    1.25     1.28     1.51     2.18     1.20

Diluted

    1.24     1.27     1.51     2.17     1.19

Net earnings per common share:

         

Basic

    1.21     1.20     1.51     1.22     1.23

Diluted

    1.20     1.19     1.51     1.22     1.23

Cash dividends declared per common share

    0.76     0.76     0.76     0.76     0.76

Balance Sheet Data

         

Total assets

    17,871     18,311     15,666     15,477     16,323

Long-term debt and capitalized lease obligations

    6,278     6,649     4,804     5,257     5,336

The operating results include restructuring initiatives that were implemented in 2001, 2002, 2004 and 2005 (refer to Note 5 “Discontinued Operations, Restructuring Activities and Closed Stores” in the notes to Albertsons’ February 2, 2006 consolidated financial statements). Although these initiatives were similar, the adoption of Statement of Financial Accounting Standard (“SFAS”) No. 144 “Accounting for the Impairment or Disposal of Long-Lived Assets” on February 1, 2002 required the financial statement presentation of these actions to be dissimilar. Albertsons’ financial statements were restated to classify the results of operations for the 2004 restructuring that resulted in the divestiture of 28 stores and three non-operating properties and the 2002 restructuring that resulted in the divestiture of 95 stores and two distribution centers and the elimination of four division offices, as discontinued operations for all periods. The operating results of the 165 stores divested under the 2001 restructuring are included in continuing operations of Albertsons’ financial statements for the periods prior to their sale or closure.

 

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Selected Historical Financial Data of Supervalu

The following table shows selected historical financial data for Supervalu. The data for each of the five fiscal years were derived from Supervalu’s audited consolidated financial statements. The data for the nine-month periods ended December 3, 2005, and December 4, 2004, were derived from Supervalu’s unaudited condensed consolidated financial statements. This information is only a summary, and you should read it together with Supervalu’s historical financial statements and related notes contained in the annual reports and other information that Supervalu has filed with the SEC and incorporated by reference into this joint proxy statement/prospectus. See “Where You Can Find More Information” beginning on page 168.

 

(Dollars in millions, except

per share data)

 

(b)

40 Weeks
December 3,
2005

    40 Weeks
December 4,
2004
 

(c)

52 Weeks
February 26,
2005

    53 Weeks
February 28,
2004
    52 Weeks
February 22,
2003
    52 Weeks
February 23,
2002
    52 Weeks
February 24,
2001
 

Statement of Earnings Data

             

Net sales

  $ 15,223     $ 14,953   $ 19,543     $ 20,210     $ 19,160     $ 20,293     $ 22,520  

Earnings from continuing operations

    200       293     386       280       257       198       73  

Net earnings

    200       293     386       280       257       198       73  

Earnings per common share from continuing operations:

             

Basic

    1.47       2.17     2.86       2.09       1.92       1.49       0.55  

Diluted

    1.41       2.06     2.71       2.01       1.86       1.47       0.55  

Net earnings per common share:

             

Basic

    1.47       2.17     2.86       2.09       1.92       1.49       0.55  

Diluted

    1.41       2.06     2.71       2.01       1.86       1.47       0.55  

Cash dividends declared per common share

    0.47  3/4     0.45     0.60  1/4     0.57  3/4     0.56  3/4     0.55  3/4     0.54  3/4

Balance Sheet Data

             

Total assets

    6,476       6,166     6,278       6,162       5,896       5,796       6,343  

Long-term debt (a)

    1,496       1,596     1,579       1,634       2,020       1,876       2,008  

Notes:

 

(a) Long-term debt includes long-term debt and long-term obligations under capital leases.
(b) Supervalu’s results for the 40 weeks ended December 3, 2005 include charges of approximately $36 after-tax related to its planned disposition of its twenty corporate-operated Shop ‘n Save retail stores in Pittsburgh and approximately $3 after-tax related to the impact of Hurricane Katrina (primarily at Save-A-Lot locations in Louisiana).
(c) Supervalu’s results for the fiscal year ended February 26, 2005, include a net after-tax gain on the sale of the company’s minority interest in WinCo Foods, Inc. of $68.

Selected Unaudited Pro Forma Financial Data

The following selected unaudited pro forma financial data have been derived from and should be read together with the unaudited pro forma condensed combined financial statements and related notes. See “SUPERVALU INC. and Subsidiaries Unaudited Pro Forma Condensed Combined Financial Statements” beginning on page 135. The selected unaudited pro forma statement of earnings data give effect to the transactions as if they had been completed on February 29, 2004, and the selected unaudited pro forma balance sheet data give effect to the transactions as if they had been completed on December 3, 2005.

 

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The following selected unaudited pro forma financial data should be read in conjunction with the historical consolidated financial statements and notes thereto of Supervalu and Albertsons, which are incorporated by reference in this joint proxy statement/prospectus, and the audited financial statements and notes thereto of New Albertsons, which are contained in this joint proxy statement/prospectus, as well as the other information contained or incorporated by reference in this joint proxy statement/prospectus. See “Where You Can Find More Information” beginning on page 168.

The selected unaudited pro forma financial data reflect adjustments for pro forma events that are (1) directly attributable to the transactions, (2) factually supportable, and (3) with respect to the statements of earnings, expected to have a continuing impact on the combined results. The selected unaudited pro forma financial data were prepared using the purchase method of accounting with Supervalu treated as the acquiring entity. Accordingly, estimated consideration to be paid by Supervalu to complete the Supervalu merger will be allocated to assets and liabilities acquired based upon their estimated fair values as of the date of completion of the Supervalu merger. The pro forma purchase price adjustments are preliminary, subject to future adjustments and have been made solely for the purpose of providing the selected unaudited pro forma financial data below. The selected unaudited pro forma financial data do not give effect to any synergies which may be achievable subsequent to the closing of the Supervalu merger or the one-time merger-related integration costs.

The selected unaudited pro forma financial data are presented for illustrative purposes only and are not necessarily indicative of what Supervalu’s actual financial position or results of operations would have been had the transactions been completed on the dates indicated above. You should not rely on the selected unaudited pro forma financial data as being indicative of the historical results that would have been achieved had the companies always been combined or the future results that Supervalu will experience.

 

(in millions, except per share data)     

For the Fiscal Year Ended February 26, 2005

    

Operating Results

  

Net sales

   $ 42,763

Net earnings from continuing operations

     516

Per share data

  

Net earnings per share from continuing operations – basic

   $ 2.43

Net earnings per share from continuing operations – diluted

   $ 2.36

For the 40 Weeks Ended December 3, 2005

    

Operating Results

  

Net sales

   $ 33,462

Net earnings from continuing operations

     325

Per share data

  

Net earnings per share from continuing operations – basic

   $ 1.53

Net earnings per share from continuing operations – diluted

   $ 1.48

Financial Position as of December 3, 2005

  

Inventories

   $ 3,190

Property, plant and equipment, net

     9,170

Total assets

     23,971

Current debt and obligations under capital leases

     171

Long-term debt and obligations under capital leases

     9,747

Total debt

     9,918

 

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COMPARATIVE PER SHARE INFORMATION

The following table presents income from continuing operations, cash dividends declared and book value per common share data separately for Supervalu and Albertsons on a historical basis, on an unaudited pro forma combined basis per Supervalu common share and on an unaudited pro forma combined basis per Albertsons equivalent common share. The following unaudited pro forma data give effect to the transactions as if they had been completed on February 29, 2004 with respect to income statement items, and on December 3, 2005 with respect to balance sheet items. The following selected unaudited pro forma financial data should be read in conjunction with the historical consolidated financial statements and notes thereto of Supervalu and Albertsons, which are incorporated by reference in this joint proxy statement/prospectus, and the other information contained or incorporated by reference in this joint proxy statement/prospectus. See “Where You Can Find More Information” beginning on page 168.

The following unaudited pro forma combined data per Supervalu common share are based upon the historical weighted average number of Supervalu common shares outstanding, adjusted to include the estimated number of Supervalu common shares to be issued in the Supervalu merger. See “SUPERVALU INC. and Subsidiaries Unaudited Pro Forma Condensed Combined Financial Statements” beginning on page 135. We have based the unaudited pro forma combined data per Albertsons equivalent common share on the unaudited pro forma combined per Supervalu common share amounts, multiplied by the exchange ratio of 0.182.

The following unaudited pro forma data are presented for illustrative purposes only and are not necessarily indicative of what Supervalu’s actual financial position or results of operations would have been had the transactions been completed on the dates indicated above. Further, the unaudited pro forma condensed combined financial statements do not reflect the effect of asset dispositions, if any, that may be required by order of regulatory authorities; one-time merger-related integration costs that will be incurred to fully integrate and operate the combined organization more efficiently; or anticipated synergies expected to result from the Supervalu merger. You should not rely on the pro forma combined financial information as being indicative of the historical results that would have been achieved had the companies always been combined or the future results that Supervalu will experience after the completion of the Supervalu merger.

 

     Supervalu
Historical
Per Share
Data
  Albertsons
Historical
Per Share
Data
  Supervalu
Pro Forma
Per Share
Data
  Pro Forma
Combined
Data Per
Albertsons
Equivalent
Share

For the Fiscal Year Ended February 26, 2005 (for Supervalu) or February 3, 2005 (for Albertsons)

        

Net earnings per common share from continuing operations:

        

Basic

   $ 2.86       $ 1.28   $ 2.43       $ 0.44    

Diluted

   $ 2.71       $ 1.27   $ 2.36       $ 0.43    

Cash dividends declared per common share

   $ 0.6025   $ 0.76   $ 0.6025   $ 0.1097

For the 40 Weeks Ended December 3, 2005 (for Supervalu) or the 39 Weeks Ended November 3, 2005 (for Albertsons)

        

Net earnings per common share from continuing operations:

        

Basic

   $ 1.47       $ 0.81   $ 1.53       $ 0.28    

Diluted

   $ 1.41       $ 0.80   $ 1.48       $ 0.27    

Cash dividends declared per common share

   $ 0.4775   $ 0.57   $ 0.4775   $ 0.0869

As of December 3, 2005 (for Supervalu) or November 3, 2005 (for Albertsons)

        

Book value per common share

   $ 19.50   $ 14.98   $ 24.26   $ 4.42

 

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COMPARATIVE MARKET VALUE INFORMATION

The following table presents:

 

    the closing prices per share and aggregate market value of Supervalu common stock and Albertsons common stock, in each case based on closing prices for those shares on the consolidated tape of the NYSE, on September 1, 2005, the last trading day before Albertsons announced that it was considering its strategic alternatives, January 20, 2006, the last trading day prior to the public announcement of the execution of the transaction agreements, and April 24, 2006, the last trading day for which this information could be calculated prior to the date of this joint proxy statement/prospectus; and

 

    the equivalent price per share and equivalent market value of shares of Albertsons common stock, based on the exchange ratio of 0.182 shares of Supervalu common stock per share of New Albertsons common stock and the closing price for Supervalu common stock on the NYSE on April 24, 2006.

 

     Supervalu    Albertsons    Implied
Albertsons
Equivalent(1)

September 1, 2005

        

Closing price per common share

   $ 34.69    $ 20.73    $ 26.66

Market value of common shares (in billions)(2)

   $ 4.7    $ 7.6   

January 20, 2006

        

Closing price per common share

   $ 31.85    $ 24.11    $ 26.15

Market value of common shares (in billions)(3)

   $ 4.3    $ 8.9   

April 24, 2006

        

Closing price per common share

   $ 29.10    $ 25.28    $ 25.65

Market value of common shares (in billions)(4)

   $ 4.0    $ 9.4   

(1) The implied Albertsons equivalent price per share reflects the fluctuating value of Supervalu common stock that New Albertsons stockholders (formerly Albertsons stockholders) would receive for each share of New Albertsons common stock if the mergers were completed on September 1, 2005, January 20, 2006, or April 24, 2006. The implied Albertsons equivalent price per share is equal to the sum of (i) $20.35 and (ii) the closing price of Supervalu common stock on the applicable date multiplied by 0.182 (rounded to the nearest cent).
(2) Based on 136,499,632 shares of Supervalu common stock and 368,386,957 shares of Albertsons common stock outstanding as of September 1, 2005.
(3) Based on 136,318,661 shares of Supervalu common stock and 368,970,767 shares of Albertsons common stock outstanding as of January 20, 2006.
(4) Based on 136,956,079 shares of Supervalu common stock and 371,285,330 shares of Albertsons common stock outstanding as of April 24, 2006.

 

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RISK FACTORS

In deciding whether to vote for adoption of the merger agreement, and for adoption of the charter amendment, in the case of Albertsons stockholders, or for approval of the issuance of Supervalu common stock, in the case of Supervalu stockholders, we urge you to consider carefully all of the information we have included and incorporated by reference in this joint proxy statement/prospectus. See “Where You Can Find More Information” beginning on page 168. In addition, we urge you to consider carefully the following risk factors relating to the transactions and the business of the combined company.

Risks Relating to the Mergers

Supervalu’s failure to integrate the core business successfully and on a timely basis after the completion of the mergers could have a material adverse effect on the business, financial condition or results of operations of Supervalu after the mergers.

Supervalu expects that the acquisition of the core business will result in certain synergies, business opportunities and growth prospects. Supervalu, however, may never realize these expected synergies, business opportunities and growth prospects. Supervalu may experience increased competition that limits its ability to expand its business, Supervalu may not be able to capitalize on expected business opportunities including retaining the current retail customers of Albertsons’ core business, assumptions underlying estimates of expected cost savings may be inaccurate, or general industry and business conditions may deteriorate. In addition, integrating operations after the completion of the mergers will require significant efforts and expenses. Personnel may leave or be terminated because of the transactions. Supervalu’s management may have its attention diverted while trying to integrate the core business. If these factors limit Supervalu’s ability to integrate the operations of the core business successfully or on a timely basis, Supervalu’s expectations of future results of operations, including certain cost savings and synergies expected to result from the mergers, may not be met. In addition, Supervalu’s growth and operating strategies for the core business may be different from the strategies that Albertsons currently is pursuing. If such difficulties are encountered or if such synergies, business opportunities and growth prospects are not realized, it could have a material adverse effect on the business, financial condition and results of operations of Supervalu after the mergers.

The transactions are subject to certain closing conditions that, if not satisfied or waived, will result in the transactions not being completed, which may cause the market price of Supervalu common stock or Albertsons common stock to decline.

The transactions are subject to customary conditions to closing, including the receipt of required approvals of the stockholders of Albertsons and Supervalu and regulatory approvals. The Supervalu merger is also subject to the completion of the standalone drug sale and the separation. Many of the conditions to the closing of the transactions are outside of the control of Albertsons and Supervalu. If any condition to the closing of the transactions is not satisfied or, if permissible, waived, the transactions will not be completed. In addition, Supervalu and Albertsons may terminate the merger agreement in certain circumstances.

If Supervalu and Albertsons do not complete the transactions, the market price of Supervalu common stock or Albertsons common stock may fluctuate to the extent that the current market prices of those shares reflect a market assumption that the transactions will be completed. Supervalu and Albertsons will also be obligated to pay certain investment banking, financing, legal and accounting fees and related expenses in connection with the transactions, whether or not the transactions are completed. In addition, each of Supervalu and Albertsons has expended, and will continue to expend, significant management resources in an effort to complete the transactions. If the transactions are not completed, Supervalu and Albertsons will have incurred significant costs, including the diversion of management resources, for which they will have received little or no benefit. Further, Albertsons may be required to pay to Supervalu a termination fee of $276 million, or Supervalu may be required to pay to Albertsons a termination fee of $135 million or $250 million, if the merger agreement is terminated under certain specified circumstances. If the transactions are not completed, Albertsons will continue to own and operate its businesses and execute its strategic initiatives, including pursuing alternatives to enhance stockholder

 

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value. These alternatives may include divesting underperforming assets and focusing more intently on Albertsons’ core asset base. For a detailed description of the circumstances in which such termination fee will be paid, see “The Transaction Agreements—The Merger Agreement—Termination Fees” on page 114.

Whether or not the transactions are completed, the announcement and pendency of the transactions could cause disruptions in the businesses of Supervalu and Albertsons, which could have an adverse effect on their business and financial results.

Whether or not the transactions are completed, the announcement and pendency of the transactions could cause disruptions in the businesses of Supervalu and Albertsons. Specifically:

 

    current and prospective employees may experience uncertainty about their future roles with the combined company, which might adversely affect the ability of Supervalu and Albertsons to retain key managers and other employees; and

 

    the attention of management of each of Supervalu and Albertsons may be directed toward the completion of the mergers, rather than toward the execution of their existing business plans.

The value of the Supervalu common stock that New Albertsons stockholders receive in the Supervalu merger may be less than the value of such Supervalu common stock when the mergers were publicly announced. Further, at the Albertsons special meeting, Albertsons stockholders will not know the exact value of Supervalu common stock that ultimately will be issued to them as New Albertsons stockholders in the Supervalu merger.

The exchange ratio for Supervalu common stock to be issued in the Supervalu merger has been fixed at 0.182 shares of Supervalu common stock per share of New Albertsons common stock. However, the price of Supervalu common stock will fluctuate until the Supervalu shares are issued. Supervalu and Albertsons are working to complete the mergers as quickly as possible. However, the time period between the stockholder votes taken at the special meetings and the completion of the mergers will depend upon the status of antitrust clearance that must be obtained prior to the completion of the mergers, the progress of the separation and the standalone drug sale, and the satisfaction or waiver of the other conditions described in this joint proxy statement/prospectus, and there is currently no way to predict how long it will take to obtain these approvals. Because the date when the mergers are completed may be later than the date of the special meetings, Supervalu and Albertsons stockholders will not know the exact value of the Supervalu common stock that will be issued in the Supervalu merger at the time they vote. As a result, if the market price of Supervalu common stock at the completion of the mergers is higher or lower than the market price on the date of the Albertsons special meeting, the value of the Supervalu common stock received by New Albertsons stockholders in the mergers will be higher or lower, respectively, than the value of such Supervalu common stock on the date of the Albertsons special meeting.

Supervalu will take on substantial additional indebtedness to finance the mergers, which will decrease Supervalu’s business flexibility and increase its borrowing costs.

Upon completion of the mergers, Supervalu will incur approximately $2 billion in additional indebtedness, and will have consolidated indebtedness that will be substantially greater than its indebtedness prior to the mergers. The increased indebtedness and higher debt-to-equity ratio of Supervalu in comparison to that of Supervalu on a historical basis will have the effect, among other things, of reducing the flexibility of Supervalu to respond to changing business and economic conditions and increasing borrowing costs. On April 13, 2006, Moody’s Investors Service lowered Supervalu’s and Albertsons’ senior unsecured long-term credit ratings to Ba3, which is below investment grade, and Supervalu’s short-term rating to not prime. Supervalu has received guidance from ratings agencies to the effect that, after the completion of the mergers, its credit rating may be further reduced. Supervalu will have increased borrowing costs, and may have increased difficulty in finding sources of debt financing, because of the reduction in its credit rating. For more information on the financial impact of Supervalu’s increased indebtedness, see “Financial Summary—Selected Unaudited Pro Forma Financial Data” on page 16.

 

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Supervalu may be required under the merger agreement to dispose of significant assets if required by governmental entities in order to resolve potential antitrust objections to the mergers.

Supervalu has agreed to take all actions (except as described in this paragraph) necessary to, among other things, resolve any objections to the mergers asserted by any governmental body under any antitrust law or the Federal Trade Commission Act, or to prevent or have lifted any court order preventing or delaying the mergers. This obligation includes, without limitation, executing settlements, undertakings, consent decrees, stipulations or other agreements. It also requires Supervalu to sell, divest, or otherwise convey any of its assets or the assets to be acquired in the mergers, as necessary, subject only to the limitation that such assets do not account for more than $4 billion in annual revenues, which represents approximately 10% of the combined annual revenues of Supervalu and the core business. The waiting period under the HSR Act expired on March 13, 2006 without the imposition by the FTC or the Antitrust Division of any conditions to or restrictions on the consummation of the transactions. At any time before or after the completion of the transactions, the FTC, the Antitrust Division, or state attorneys general could take action under the antitrust laws, as they deem necessary or desirable in the public interest, seeking to enjoin completion of the transactions, or to rescind the transactions. Private parties also may seek to take action under the antitrust laws under certain circumstances. As in every transaction, there can be no assurance that a challenge to the transactions on antitrust grounds will not be made or, if such a challenge is made, that it will not be successful.

Certain directors and executive officers of Albertsons have interests and arrangements that are different from, or in addition to, other Albertsons stockholders.

When considering the recommendation of the Albertsons board of directors with respect to the merger agreement and the charter amendment, Albertsons stockholders should be aware that some directors and executive officers of Albertsons have interests in the transactions that may be different from, or in addition to, their interests as Albertsons stockholders and the interests of Albertsons stockholders generally.

These interests include, among other things, the expectation that three members of Albertsons’ board of directors will become members of Supervalu’s board of directors following the completion of the Supervalu merger; accelerated vesting and, in some cases, immediate settlement of equity awards held by directors and officers of Albertsons; cash payments and other benefits that may become payable under existing employment and change-of-control severance agreements between Albertsons and certain officers of Albertsons as a result of the completion of the transactions; the potential for early payout of vested account balances of certain directors and officers under deferred compensation plans; and the potential accelerated vesting of benefits of certain officers of Albertsons under deferred compensation plans. In addition, certain anti-takeover provisions applicable to Supervalu under Delaware law and Supervalu’s certificate of incorporation, bylaws and other agreements could interfere with or restrict takeover bids or other change-in-control events affecting Supervalu. If any of Albertsons’ directors or officers become directors or officers of Supervalu, these anti-takeover provisions may benefit such persons because of a reduced likelihood of takeover activity resulting in a change in the composition of Supervalu’s board of directors or management team.

As a result of the interests described above, Albertsons’ directors and executive officers may be more likely to support and to vote to adopt the merger agreement and the charter amendment than if they did not have these interests. Stockholders should consider whether these interests may have influenced Albertsons’ directors and officers to support or recommend adoption of the merger agreement and the charter amendment. See “The Mergers—Interests of Albertsons’ Directors and Executive Officers in the Mergers” on page 85.

Some of the financial advisors to Albertsons and Supervalu have had prior business relationships with one or more of the parties to the transactions and are entitled to contingent fees in connection with the transactions.

Albertsons’ fee arrangements with Goldman Sachs and Blackstone, and Supervalu’s fee arrangements with Lazard, are structured so that certain fees are paid only if certain transactions are completed. The aggregate transaction fee payable by Albertsons to each of Goldman Sachs and Blackstone, the principal portion of which

 

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will only be payable upon completion of the transactions contemplated by the merger agreement, is currently estimated to be approximately $24.1 million. Similarly, under the terms of Supervalu’s engagement letter with Lazard, $15.5 million of consideration will be payable to Lazard only at the effective time of the Supervalu merger. In addition to these contingent fee arrangements, Goldman Sachs has previously provided investment banking services to each of the parties to the transactions and/or their affiliates from time to time. These past services include, among others, acting as a participant in revolving credit facilities of Albertsons and Supervalu and providing financial advisory services to CVS and certain of Cerberus’s affiliates in connection with past acquisitions. Similarly, in the past Lazard has provided investment banking services to Supervalu for which it has received customary fees. In addition, all of the financial advisors may provide services to the parties to the transactions in the future. For a more detailed description of the fee arrangements and past relationships of the financial advisors, see “Opinion of Albertsons’ Financial Advisors—Opinion of Goldman Sachs” beginning on page 56, “Opinion of Albertsons’ Financial Advisors—Opinion of Blackstone” beginning on page 58, and “Opinion of Supervalu’s Financial Advisor” beginning on page 77.

A putative class action complaint has been filed in connection with the transactions and, if decided adversely to the defendants, could result in the entry of an injunction against the completion of the mergers and an order for other relief.

On January 24, 2006, a putative class action complaint was filed in the Fourth Judicial District of the State of Idaho in and for the County of Ada, naming Albertsons and its directors as defendants. The action, Christopher Carmona v. Henry Bryant, et al., No. CV-OC-0601251, challenges the merger agreement and related transactions. Specifically, the complaint alleges that Albertsons and its directors violated applicable law by directly breaching and/or aiding the other defendants’ breaches of their fiduciary duties, including by failing to value Albertsons properly and by ignoring conflicts of interest. Among other things, the complaint seeks preliminary and permanent injunctive relief to enjoin the completion of the mergers, rescission of the mergers to the extent implemented, and an imposition of a constructive trust in favor of plaintiff for any benefits improperly received by defendants. Consequently, if this case were decided adversely to the defendants, the entry of an injunction against the completion of the mergers, an order for rescission and/or an order for monetary relief for which Albertsons may be responsible could result.

Risks Relating to Supervalu’s Operations After the Completion of the Mergers

The market price for shares of Supervalu common stock may be affected by factors different from, or in addition to, those affecting shares of Albertsons common stock, and the market value of Supervalu common stock may decrease after the closing date of the mergers.

Upon completion of the mergers, the holders of New Albertsons common stock will become holders of Supervalu common stock. Supervalu currently operates in different geographic areas from Albertsons and the results of Supervalu’s operations after the mergers may be affected by factors different from or in addition to those currently affecting the results of the operations of Albertsons. In addition, Supervalu and Albertsons have a different mix of businesses: the business of Supervalu includes a significant food distribution and related logistics support services business, while the business of Albertsons is primarily retail grocery and drug sales and includes the standalone drug business. The market value of the shares of Supervalu common stock that Albertsons stockholders receive in the mergers could decrease following the closing date of the mergers. For a discussion of the businesses of Supervalu and Albertsons and factors to consider in connection with those businesses, please see the documents incorporated by reference into this joint proxy statement/prospectus and listed under the section captioned “Where You Can Find More Information,” beginning on page 168.

General economic conditions affecting the food industry may affect Supervalu’s business.

The retail food and food distribution industries are sensitive to a number of economic conditions such as: (i) food price deflation or inflation, (ii) softness in local and national economies, (iii) increases in commodity prices, (iv) the availability of favorable credit and trade terms, and (v) other economic conditions that may affect

 

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consumer buying habits. Any one or more of these economic conditions can affect Supervalu’s retail sales, the demand for products Supervalu distributes to its retailer customers, its operating costs and other aspects of its businesses.

Supervalu faces a high level of competition in the retail food and food distribution businesses from several retail formats.

The industries in which Supervalu competes are extremely competitive. Both the retail food and food distribution businesses are subject to competitive practices that may affect: (i) the prices at which Supervalu is able to sell products at its retail locations, (ii) sales volume, (iii) the ability of Supervalu’s distribution customers to sell products it supplies, which may affect future orders, and (iv) Supervalu’s ability to attract and retain customers. In addition, the nature and extent of consolidation in the retail food and food distribution industries could affect Supervalu’s competitive position or that of its distribution customers in the markets it serves.

Supervalu’s retail food business faces competition from other retail chains, supercenters, non-traditional competitors and emerging alternative formats in the markets where it has retail operations. In the food distribution business, Supervalu’s success depends in part on the ability of its independent retailer customers to compete effectively, its ability to attract new customers, and its ability to supply products in a cost-effective manner. Declines in the level of retail sales activity of distribution customers due to competition, consolidations of retailers or competitors, increased self-distribution by Supervalu’s customers, or the entry of new or non-traditional distribution systems into the industry may adversely affect Supervalu’s revenues.

Threats or potential threats to food safety may adversely affect Supervalu’s business.

Wartime activities, threats of terror, acts of terror or other criminal activity directed at the grocery or drug store industry, the transportation industry, or computer or communications systems, could increase security costs, adversely affect Supervalu’s operations, or impact consumer behavior and spending as well as customer orders. Other events that give rise to actual or potential food contamination, drug contamination, or food-borne illness could have an adverse effect on Supervalu’s operating results.

Escalating costs of providing employee benefits and other labor relations issues may lead to labor disputes and disruption of Supervalu’s businesses.

Potential work disruptions from labor disputes may affect sales at Supervalu’s stores as well as its ability to distribute products. Supervalu contributes to various multiemployer healthcare and pension plans covering certain union-represented employees in both its retail and distribution operations. A significant number of employees of Supervalu (and of the core business) are subject to collective bargaining agreements, and a majority of those employees are participants in multiemployer pension plans. The costs of providing benefits through such plans have escalated rapidly in recent years. Based upon information available to Supervalu, it believes that certain of these multiemployer plans are underfunded. The decline in the value of assets supporting these plans, in addition to the high level of benefits generally provided, has led to the underfunding. As a result, contributions to these plans will continue to increase and the benefit levels and other issues will continue to create collective bargaining challenges.

Anti-takeover provisions could delay, deter or prevent a change in control of Supervalu even if the change in control would be beneficial to Supervalu stockholders.

Supervalu is a Delaware corporation subject to Delaware state law. Some provisions of Delaware law could interfere with or restrict takeover bids or other change-in-control events affecting Supervalu. One statutory provision prohibits, except under specified circumstances, Supervalu from engaging in any business combination with any stockholder who owns 15% or more of Supervalu’s common stock. Also, provisions in Supervalu’s certificate of incorporation, by-laws and other agreements to which Supervalu is a party could delay, deter or prevent a change in control of Supervalu, even if a change in control would be beneficial to stockholders. Among other things, Supervalu has a stockholder rights plan and a classified board of directors.

 

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CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS

This joint proxy statement/prospectus and the SEC filings that are incorporated by reference into this joint proxy statement/prospectus contain or incorporate by reference forward-looking statements that have been made pursuant to the provisions of, and in reliance on the safe harbor under, the Private Securities Litigation Reform Act of 1995. These forward-looking statements are not historical facts, but rather are based on current expectations, estimates and projections. Words such as “anticipates,” “expects,” “intends,” “plans,” “believes,” “seeks,” “could,” “should,” “will,” “projects,” “estimates” and similar expressions are intended to identify forward-looking statements. These statements are not guarantees of future performance and are subject to risks, uncertainties and other factors, some of which are beyond our control, are difficult to predict and could cause actual results to differ materially from those expressed or forecasted in the forward-looking statements. In that event, Supervalu’s or Albertsons’ business, financial condition or results of operations could be materially adversely affected, and investors in Supervalu’s or Albertsons’ securities could lose part or all of their investment. You should not place undue reliance on these forward-looking statements, which speak only as of the date of this joint proxy statement/prospectus or, in the case of documents incorporated by reference, the date referenced in those documents. We are not obligated to update these statements or publicly release the result of any revision to them to reflect events or circumstances after the date of this joint proxy statement/prospectus or, in the case of documents incorporated by reference, the date referenced in those documents, or to reflect the occurrence of unanticipated events.

You should understand that the following important factors, in addition to those discussed under the caption “Risk Factors” beginning on page 20 and elsewhere in this joint proxy statement/prospectus, and in the documents that are incorporated by reference into this joint proxy statement/prospectus, could affect the future results of Supervalu and Albertsons, and of the combined company after the completion of the mergers, and could cause those results or other outcomes to differ materially from those expressed or implied in our forward-looking statements:

Economic and Industry Conditions

 

    materially adverse changes in economic, financial or industry conditions generally or in the markets served by our companies;

 

    actions of competitors;

 

    changes in demographics and consumer preferences;

 

    changes in the retail grocery industry, including competition from supercenters, non-traditional formats and emerging alternative formats;

Transaction or Commercial Factors

 

    the outcome of negotiations with partners, governments, suppliers, unions, customers or others;

 

    the timing of the completion of the transactions;

 

    Supervalu’s ability to integrate the operations of Supervalu and the core business of Albertsons successfully after the mergers, to achieve expected synergies, and to minimize the diversion of management’s attention and resources during the integration process;

 

    the process of, or conditions imposed in connection with, obtaining regulatory approvals for the mergers;

Legal/Political/Governmental Factors

 

    liability for litigation, administrative actions, and similar disputes;

 

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    inability to timely obtain permits, comply with government regulations or make capital expenditures required to maintain compliance;

 

    changes in laws and regulations;

Operating Factors

 

    changes of business, operations, results and prospects;

 

    potential delays in the development, construction or start-up of planned projects;

 

    labor relations;

 

    changes in operating conditions and costs; and

 

    the level of capital resources required for future acquisitions and operations.

 

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THE ALBERTSONS SPECIAL MEETING

General

This joint proxy statement/prospectus is being provided to Albertsons stockholders as part of a solicitation of proxies by the Albertsons board of directors for use at the special meeting of Albertsons stockholders and at any adjournments or postponements thereof. This joint proxy statement/prospectus is first being furnished to stockholders of Albertsons on or about May 1, 2006. In addition, this joint proxy statement/prospectus is being furnished to Albertsons stockholders as a prospectus for Supervalu in connection with the issuance by Supervalu of shares of Supervalu common stock to New Albertsons stockholders in connection with the Supervalu merger. This joint proxy statement/prospectus provides Albertsons stockholders with the information they need to know to be able to vote or instruct their vote to be cast at the special meeting of Albertsons stockholders.

Date, Time and Place of the Albertsons Special Meeting

The special meeting of Albertsons stockholders will be held at 9:00 a.m., Eastern Daylight Time, on May 30, 2006, at the offices of Sullivan & Cromwell LLP, 125 Broad Street, 37th Floor, New York, New York 10004-2498.

Purposes of the Albertsons Special Meeting

At the Albertsons special meeting, Albertsons stockholders will be asked:

 

    to adopt the merger agreement;

 

    to adopt the charter amendment;

 

    to approve adjournments of the Albertsons special meeting, including, if necessary, to permit further solicitation of proxies if there are not sufficient votes at the time of the Albertsons special meeting to approve the above proposals; and

 

    to consider and take action upon any other business that may properly come before the Albertsons special meeting, or any adjournment or postponement of the Albertsons special meeting.

Record Date; Outstanding Shares; Shares Entitled to Vote

The record date for the meeting for Albertsons stockholders was April 24, 2006. This means that you must have been a stockholder of record of Albertsons common stock at the close of business on April 24, 2006, in order to vote at the special meeting. You are entitled to one vote for each share of Albertsons common stock you own. On Albertsons’ record date, there were 371,285,330 shares of Albertsons common stock outstanding and entitled to vote.

A complete list of Albertsons stockholders entitled to vote at the Albertsons special meeting will be available for inspection at the principal place of business of Albertsons during regular business hours for a period of no less than ten days before the special meeting and at the place of the Albertsons special meeting during the meeting.

Quorum and Vote Required

A quorum of stockholders is necessary to hold a valid special meeting of Albertsons. The required quorum for the transaction of business at the special meeting is a majority of the outstanding shares of Albertsons common stock as of the record date, entitled to vote and present at the special meeting, whether in person or by proxy. All shares of Albertsons common stock represented at the Albertsons special meeting, including abstentions and broker non-votes, will be treated as shares that are present for purposes of determining the presence of a quorum. Broker non-votes are shares held by a broker or other nominee that are represented at the meeting, but with respect to which such broker or nominee is not instructed by the beneficial owner of such

 

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shares to vote on the particular proposal and the broker does not have discretionary voting power on such proposal because the proposal is not routine. Your broker will not have discretion to vote on the proposal to adopt the merger agreement or the proposal to adopt the charter amendment without instructions from you, because those proposals are not routine.

The votes required to adopt the respective proposals at the Albertsons special meeting are:

 

    Adoption of the merger agreement requires the affirmative vote of a majority of the outstanding shares of Albertsons common stock.

 

    Adoption of the charter amendment requires the affirmative vote of a majority of the outstanding shares of Albertsons common stock.

 

    Approval of adjournments of the Albertsons special meeting, including, if necessary, to permit further solicitation of proxies if there are not sufficient votes at the time of the Albertsons special meeting to approve the above proposals, requires the affirmative vote of a majority of the shares of Albertsons common stock present in person or represented by proxy and entitled to vote thereon at the Albertsons special meeting.

For a discussion of how broker non-votes and abstentions will affect the outcome of the vote on these proposals, see “—Voting; Proxies—Voting Shares Held in Street Name” on page 29 and “—Voting; Proxies—Abstaining from Voting” on page 30.

Recommendation of the Albertsons Board of Directors

As discussed elsewhere in this joint proxy statement/prospectus, Albertsons’ board of directors has approved the merger agreement, and has determined that the mergers are advisable and fair to, and in the best interests of, Albertsons and its stockholders. The Albertsons board of directors recommends that Albertsons’ stockholders vote:

 

    FOR the proposal to adopt the merger agreement;

 

    FOR the proposal to adopt the charter amendment; and

 

    FOR the proposal to adjourn the Albertsons special meeting under certain circumstances.

See “Albertsons’ Reasons for the Mergers and Recommendation of Albertsons’ Board of Directors” beginning on page 49.

ITEM 1—THE MERGER AGREEMENT

As discussed elsewhere in this joint proxy statement/prospectus, Albertsons stockholders are considering and voting on a proposal to adopt the merger agreement. You should read carefully this joint proxy statement/prospectus in its entirety for more detailed information concerning the merger agreement. In particular, you are directed to the merger agreement, which is attached as Annex A to this joint proxy statement/prospectus.

The Albertsons board of directors recommends that Albertsons stockholders vote FOR the adoption of the merger agreement, and your properly signed and dated proxy will be so voted unless you specify otherwise.

ITEM 2—AMENDMENT TO THE RESTATED CERTIFICATE

OF INCORPORATION TO PROVIDE FOR

APPRAISAL RIGHTS IN THE REORGANIZATION MERGER

In light of the transaction structure, appraisal rights will not be available in connection with the Supervalu merger. Consequently, the Albertsons board is submitting for a stockholder vote a proposal to adopt a charter amendment that would entitle Albertsons stockholders to appraisal rights in connection with the reorganization

 

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merger, provided that the Supervalu merger is completed and subject to compliance with the procedures detailed in “The Mergers—Appraisal Rights of Albertsons Stockholders” beginning on page 92. Approval of the charter amendment is not a condition to either merger. If the charter amendment is not adopted at the Albertsons special meeting, holders of Albertsons stock would not be entitled to appraisal rights in connection with the reorganization merger. Regardless of whether the charter amendment is adopted at the Albertsons special meeting, holders of New Albertsons stock will have no appraisal rights in connection with the Supervalu merger.

The proposed charter amendment is attached to this joint proxy statement/prospectus as Annex B.

The Albertsons board of directors recommends that Albertsons stockholders vote FOR the adoption of the charter amendment, and your properly signed and dated proxy will be so voted unless you specify otherwise.

ITEM 3—APPROVE ADJOURNMENTS OF THE SPECIAL MEETING, INCLUDING,

IF NECESSARY, TO PERMIT FURTHER SOLICITATION OF PROXIES

Stockholders may be asked to vote on a proposal to adjourn the Albertsons special meeting, including, if necessary, to permit further solicitation of proxies if there are not sufficient votes at the time of the Albertsons special meeting to approve the above proposals. See the discussion regarding adjournments below in “—Other Business; Adjournments” on page 32.

The Albertsons board of directors recommends that Albertsons stockholders vote FOR the proposal to adjourn the Albertsons special meeting under certain circumstances, and your properly signed and dated proxy will be so voted unless you specify otherwise.

Voting by Albertsons’ Directors and Executive Officers

As of the record date for the Albertsons special meeting, Albertsons’ directors and executive officers had the right to vote approximately 523,194 shares of the then-outstanding Albertsons voting stock at the Albertsons special meeting. As of the record date of the Albertsons special meeting, these shares represented less than 1% of the Albertsons common stock outstanding and entitled to vote at the meeting.

Voting; Proxies

You may vote in person at the Albertsons special meeting or by proxy. Albertsons recommends you submit your proxy even if you plan to attend the special meeting.

If you own common stock in your own name, you are an “owner of record.” This means that you may use the enclosed proxy card(s) to tell the persons named as proxies how to vote your shares. If you properly complete, sign and date your proxy card(s), or, if available, submit your proxy by telephone or over the Internet, your proxy will be voted in accordance with your instructions. The named proxies will vote all shares at the meeting for which proxies have been properly submitted (whether by Internet, telephone or mail) and not revoked. If you sign and return your proxy card(s) but do not mark your card(s) to tell the proxies how to vote your shares on each proposal, your proxy will be voted as recommended by the Albertsons board of directors.

If you hold shares of Albertsons common stock in a stock brokerage account or through a bank, broker or other nominee, or, in other words, in street name, please follow the voting instructions provided by that entity. Also, see “—Voting Shares Held in Street Name” immediately below.

Voting Shares Held in Street Name

Generally, a broker, bank or other nominee may only vote the common stock that it holds in street name for you in accordance with your instructions. However, if your broker, bank or other nominee has not received your instructions, your broker, bank or other nominee has the discretion to vote on certain matters that are considered

 

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routine. A broker non-vote occurs if your broker, bank or other nominee cannot vote on a particular matter because your broker, bank or other nominee has not received instructions from you and because the proposal is not routine.

If you wish to vote on the proposal to adopt the merger agreement or to adopt the charter amendment, you must provide instructions to your broker, bank or other nominee because neither of these proposals is routine. If you do not provide your broker, bank or other nominee with instructions with respect to either of these proposals, your broker, bank or other nominee will not be authorized to vote with respect to that proposal, and a broker non-vote will occur. This will have the same effect as a vote against the adoption of that proposal.

If you wish to vote on any proposal to approve adjournments of the Albertsons special meeting, you should provide instructions to your broker, bank or other nominee. If you do not provide instructions to your broker, bank or other nominee, your broker, bank or other nominee generally will have the authority to vote on proposals such as the adjournment of meetings. However, your broker, bank or other nominee will not be authorized to vote on any proposal to adjourn the meeting solely relating to the solicitation of proxies to adopt the merger agreement or to adopt the charter amendment.

Abstaining from Voting

Your abstention from voting will have the following effects:

 

    Abstentions will have the same effect as a vote against the adoption of the merger agreement and against the adoption of the charter amendment.

 

    Abstentions will have the same effect as a vote against the approval of adjournments of the Albertsons special meeting.

How to Vote

You have three options:

 

    Internet: You can submit your proxy over the Internet at the Web address shown on your proxy card(s). Submission of proxies via the Internet will be available 24 hours a day. If you submit your proxy over the Internet, do not return your proxy card(s).

 

    Telephone: You can submit your proxy by telephone by calling the toll-free number on your proxy card(s) from a touch-tone phone. Submission of proxies by telephone will be available 24 hours a day. If you submit your proxy by telephone, do not return your proxy card(s).

 

    Mail: You can submit your proxy by mail by simply marking, signing, dating and promptly mailing your proxy card(s) in the postage-paid envelope (if mailed in the United States) included with this joint proxy statement/prospectus.

The named proxies will vote all shares at the meeting for which proxies have been properly submitted (whether by Internet, telephone or mail) and not revoked. If you sign and return your proxy card(s) but do not mark your card(s) to tell the proxies how to vote your shares on each proposal, your proxy will be voted as recommended by the Albertsons board of directors.

If you plan to attend the special meeting, please follow the advance registration instructions included with this joint proxy statement/prospectus. An admission card, which is required for admission to the meeting, will be mailed to you prior to the meeting. Albertsons will seat attendees on a first-come, first-served basis.

Revoking Your Proxy

If you are the owner of record of your shares, you can revoke your proxy at any time before its exercise by:

 

    sending a written notice to the Corporate Secretary of Albertsons, at 250 East Parkcenter Boulevard, Boise, Idaho 83706, that is received prior to the Albertsons special meeting and states that you revoke your proxy;

 

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    submitting your proxy again over the Internet or by telephone;

 

    signing another proxy card(s) bearing a later date and mailing it so that it is received prior to the special meeting; or

 

    attending the special meeting and voting in person, although attendance at the special meeting will not, by itself, revoke a proxy.

If your shares are held in street name by your broker, you will need to contact your broker to revoke your proxy.

Other Voting Matters

Voting in Person

If you plan to attend the Albertsons special meeting and wish to vote in person, Albertsons will give you a ballot at the special meeting. However, if your shares are held in street name, you must first obtain a legal proxy authorizing you to vote the shares in person, which you must bring with you to the Albertsons special meeting.

If you plan to attend the Albertsons special meeting, please follow the advance registration instructions below and an admission card, which is required for admission to the Albertsons special meeting, will be mailed to you. Upon arrival at the Albertsons special meeting, you will be asked to present your admission card and appropriate picture identification to enter the meeting.

Attendance at the Albertsons special meeting is limited to Albertsons stockholders, members of their immediate family or their named representatives. Albertsons reserves the right to limit the number of representatives who may enter the meeting. Albertsons will seat attendees on a first-come, first-served basis.

If your Albertsons shares are held by you directly (of record) and you plan to attend the Albertsons special meeting, please follow the advance registration instructions on your proxy card included with this joint proxy statement/prospectus.

If your Albertsons shares are held for you in a brokerage, bank or other institutional account and you wish to attend the Albertsons special meeting, please send an Albertsons special meeting advance registration request containing the information listed below to:

Georgeson Shareholder Communications, Inc.

17 State Street, 10th Floor

New York, New York 10004

Telephone: (800) 868-1359

Please include the following information:

 

    Your name and complete mailing address

 

    The name(s) of any family member who will accompany you

 

    If you will be naming a representative to attend the meeting on your behalf, the name, address and telephone number of that individual

 

    Proof that you own Albertsons common stock (such as a letter from your bank or broker or a photocopy of a current brokerage or other account statement)

Attendance at the Albertsons special meeting will be limited to persons presenting an admission card and picture identification. To obtain an admission card, please follow the advance registration instructions above.

 

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Electronic Access to Proxy Materials

This joint proxy statement/prospectus is available through Albertsons’ Internet site at www.albertsons.com.

People with Disabilities

Albertsons can provide reasonable assistance to help you participate in the special meeting if you tell Albertsons about your disability and how you plan to attend. Please call or write to Albertsons’ Corporate Secretary’s department at 250 East Parkcenter Boulevard, Boise, Idaho 83706, (208) 395-6200.

Proxy Solicitations

Albertsons is soliciting proxies for the Albertsons special meeting from Albertsons stockholders. Albertsons will bear the entire cost of soliciting proxies from Albertsons stockholders, except that Supervalu and Albertsons will share equally the expenses incurred in connection with the filing of the registration statement of which this joint proxy statement/prospectus forms a part with the SEC and the printing and mailing of this joint proxy statement/prospectus. In addition to this mailing, Albertsons directors, officers and employees (who will not receive any additional compensation for their services) may solicit proxies personally, electronically or by telephone. Albertsons has also engaged Georgeson Shareholder Communications, Inc., for a fee of approximately $30,000, to assist in the solicitation of proxies. Albertsons and its proxy solicitors will also request that banks, brokerage houses and other custodians, nominees and fiduciaries send proxy materials to the beneficial owners of Albertsons common stock and will, if requested, reimburse the record holders for their reasonable out-of-pocket expenses in doing so. The extent to which these proxy-soliciting efforts will be necessary depends upon how promptly proxies are submitted. You should promptly submit your proxy by telephone or over the Internet or submit your completed proxy card(s) without delay by mail.

Stockholders should not submit any stock certificates with their proxy cards.

Other Business; Adjournments

Albertsons is not aware of any other business to be acted upon at the Albertsons special meeting. If, however, other matters are properly brought before the special meeting, your proxies will have discretion to vote or act on those matters according to their best judgment, and intend to vote the shares as the Albertsons board of directors may recommend.

Any adjournment may be made from time to time by approval of the stockholders holding a majority of the shares present in person or represented by proxy and entitled to vote thereon at the special meeting, whether or not a quorum exists, without further notice other than by an announcement made at the special meeting. In addition, if the adjournment of the special meeting is for more than 30 days or if after the adjournment a new record date is fixed for an adjourned meeting, notice of the adjourned meeting must be given to each stockholder of record entitled to vote at such special meeting. If a quorum is not present at the special meeting, stockholders may be asked to vote on a proposal to adjourn the special meeting to solicit additional proxies. If a quorum is not present at the special meeting, the holders of a majority of the shares entitled to vote thereon who are present in person or by proxy may adjourn the special meeting. If a quorum is present at the special meeting but there are not sufficient votes at the time of the special meeting to approve the other proposal(s), holders of common stock may also be asked to vote on a proposal to approve the adjournment of the special meeting to permit further solicitation of proxies.

Assistance

If you need assistance in completing your proxy card or have questions regarding the Albertsons special meeting, please contact Georgeson Shareholder Communications, Inc., at (800) 868-1359 or write to 17 State Street, 10th Floor, New York, New York 10004.

 

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THE SUPERVALU SPECIAL MEETING

General

This joint proxy statement/prospectus is being provided to Supervalu stockholders as part of a solicitation of proxies by the Supervalu board of directors for use at a special meeting of Supervalu stockholders and at any adjournments or postponements thereof. This joint proxy statement/prospectus is first being furnished to stockholders of Supervalu on or about May 1, 2006. This joint proxy statement/prospectus provides Supervalu stockholders with the information they need to know to be able to vote or instruct their vote to be cast at the special meeting of Supervalu stockholders.

Date, Time and Place of the Supervalu Special Meeting

The special meeting of Supervalu stockholders will be held at 1:00 p.m., Eastern Daylight Time, on May 30, 2006, at the offices of Wachtell, Lipton, Rosen & Katz, 51 West 52nd Street, New York, New York 10019.

Purposes of the Supervalu Special Meeting

At the Supervalu special meeting, Supervalu stockholders will be asked:

 

    to authorize the issuance of Supervalu common stock in connection with the Supervalu merger;

 

    to approve the adjournment of the Supervalu special meeting, including, if necessary, to solicit additional proxies, in the event that there are not sufficient votes at the time of the Supervalu special meeting to approve the stock issuance proposal; and

 

    to consider and take action upon any other business that may properly come before the Supervalu special meeting or any adjournment or postponement of the Supervalu special meeting.

Record Date; Outstanding Shares; Shares Entitled to Vote

The record date for the meeting for Supervalu stockholders was April 21, 2006. This means that you must have been a stockholder of record of Supervalu common or preferred stock at the close of business on April 21, 2006, in order to vote at the special meeting. You are entitled to one vote for each share of Supervalu common or preferred stock that you own. On Supervalu’s record date, Supervalu’s outstanding voting securities carried 136,957,420 votes, which consisted of 136,956,079 shares of common stock and 1,341 shares of preferred stock. Under the DGCL, Supervalu’s 13,675,131 shares of treasury stock may not vote at the Supervalu special meeting, and will not be counted in determining whether a quorum exists.

A complete list of Supervalu stockholders entitled to vote at the Supervalu special meeting will be available for inspection at the principal place of business of Supervalu during regular business hours for a period of no less than ten days before the special meeting and at the place of the Supervalu special meeting during the meeting.

Quorum and Vote Required

A quorum of stockholders is necessary to hold a valid special meeting of Supervalu. The holders of a majority of the Supervalu voting stock issued and outstanding and entitled to vote, present in person or represented by proxy, will constitute a quorum for the transaction of business at the special meeting (with common stock and preferred stock considered together as a single class). All shares of Supervalu common and preferred stock represented at the Supervalu special meeting, including abstentions and broker non-votes, will be treated as shares that are present and entitled to vote for purposes of determining the presence of a quorum. Broker non-votes are shares held by a broker or other nominee that are represented at the meeting, but with respect to which such broker or nominee is not instructed by the beneficial owner of such shares to vote on the particular proposal and the broker does not have discretionary voting power on such proposal. Your broker will not have discretion to vote on the proposal to issue shares of Supervalu common stock, because that proposal is not routine.

 

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In accordance with NYSE listing requirements, the approval of the issuance of shares of Supervalu common stock pursuant to the terms of the merger agreement requires the approval of at least a majority of the votes cast by the holders of outstanding shares of Supervalu voting stock present (in person or by proxy) at the Supervalu special meeting, where the holders of at least a majority of all outstanding shares of Supervalu voting stock vote on the proposal. Abstentions and broker non-votes will be treated as shares not voted on the issuance of Supervalu common stock in connection with the Supervalu merger. Accordingly, an abstention or broker non-vote can negatively affect the vote on the Supervalu share issuance proposal if their failure to be counted results in less than a majority of all outstanding shares of Supervalu voting stock being voted.

Approval of adjournments of the Supervalu special meeting, if necessary, to permit further solicitation of proxies if there are not sufficient votes at the time of the Supervalu special meeting to approve the issuance of Supervalu common stock requires the affirmative vote of a majority of shares of Supervalu common and preferred stock present in person or represented by proxy and entitled to vote thereon at the Supervalu special meeting.

For a discussion of how broker non-votes and abstentions will affect the outcome of the vote on these proposals, see “—Voting; Proxies—Voting Shares Held in Street Name” on page 35 and “—Voting; Proxies—Abstaining from Voting” on page 35.

Recommendation of the Supervalu Board of Directors

As discussed elsewhere in this joint proxy statement/prospectus, Supervalu’s board of directors has approved the merger agreement and has determined that it is advisable to enter into the Supervalu merger. See “Supervalu’s Reasons for the Mergers and Recommendation of Supervalu’s Board of Directors” beginning on page 53.

The Supervalu board of directors recommends that Supervalu stockholders vote FOR the issuance of Supervalu common stock in connection with the Supervalu merger, and FOR the proposal to adjourn the Supervalu special meeting under certain circumstances.

ITEM 1—THE ISSUANCE OF SUPERVALU COMMON STOCK

As discussed elsewhere in this joint proxy statement/prospectus, Supervalu stockholders are considering and voting on a proposal to issue Supervalu common stock in connection with the Supervalu merger. You should read carefully this joint proxy statement/prospectus in its entirety for more detailed information concerning the mergers. In particular, you are directed to the merger agreement, which is attached as Annex A to this joint proxy statement/prospectus.

The Supervalu board of directors recommends that Supervalu stockholders vote FOR the issuance of Supervalu common stock in connection with the Supervalu merger, and your properly signed and dated proxy will be so voted unless you specify otherwise.

ITEM 2—APPROVE ADJOURNMENTS OF THE SPECIAL MEETING, INCLUDING, IF NECESSARY, TO PERMIT FURTHER SOLICITATION OF PROXIES

Stockholders may be asked to vote on a proposal to adjourn the Supervalu special meeting, including, if necessary, to permit further solicitation of proxies if there are not sufficient votes at the time of the Supervalu special meeting to approve the above proposals. See the discussion regarding adjournments below in “—Other Business; Adjournments or Postponements” on page 37.

The Supervalu board of directors recommends that Supervalu stockholders vote FOR the proposal to adjourn the Supervalu special meeting under certain circumstances, and your properly signed and dated proxy will be so voted unless you specify otherwise.

 

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Voting by Supervalu’s Directors and Executive Officers

As of the record date for the Supervalu special meeting, Supervalu’s directors and executive officers had the right to vote approximately 1,517,116 shares of the then-outstanding Supervalu common stock at the Supervalu special meeting. As of the record date of the Supervalu special meeting, these shares represented approximately 1.1% of the Supervalu stock outstanding and entitled to vote at the meeting.

Voting; Proxies

You may vote in person at the Supervalu special meeting or by proxy. Supervalu recommends that you submit your proxy even if you plan to attend the special meeting. If you submit your proxy, you may change your vote if you attend and vote at the special meeting.

If you own stock in your own name, you are an “owner of record.” This means that you may use the enclosed proxy card(s) to tell the persons named as proxies how to vote your shares. If you properly complete, sign and date your proxy card(s), or, if available, submit your proxy by telephone or over the Internet, your proxy will be voted in accordance with your instructions. The named proxies will vote all shares at the meeting for which proxies have been properly submitted (whether by Internet, telephone or mail) and not revoked. If you sign and return your proxy card(s) but do not mark your card(s) to tell the proxies how to vote your shares on each proposal, your proxy will be voted as recommended by the Supervalu board of directors.

If you hold shares of Supervalu stock in a stock brokerage account or through a bank, broker or other nominee, or, in other words, in street name, please follow the voting instructions provided by that entity. Also, see “—Voting Shares Held in Street Name” immediately below.

Voting Shares Held in Street Name

Generally, a broker, bank or other nominee may only vote the stock that it holds in street name for you in accordance with your instructions. However, if your broker, bank or other nominee has not received your instructions, your broker, bank or other nominee has the discretion to vote on certain matters that are considered routine. A broker non-vote occurs if your broker, bank or other nominee cannot vote on a particular matter because your broker, bank or other nominee has not received instructions from you and because the proposal is not routine.

If you wish to vote on the proposal to issue Supervalu common stock in connection with the merger agreement, you must provide instructions to your broker, bank or other nominee because this proposal is not routine. If you do not provide your broker, bank or other nominee with instructions with respect to this proposal, your broker, bank or other nominee will not be authorized to vote with respect to this proposal, and a broker non-vote will occur. Broker non-votes will not be counted for determining whether the share issuance proposal has been approved, but can negatively affect the vote on the Supervalu share issuance proposal if their failure to be counted results in less than a majority of all outstanding shares of Supervalu stock being voted.

If you wish to vote on the proposal to approve adjournments of the Supervalu special meeting, you should provide instructions to your broker, bank or other nominee. If you do not provide instructions to your broker, bank or other nominee, your broker, bank or other nominee generally will have the authority to vote on proposals such as the adjournment of meetings. However, your broker, bank or other nominee will not be authorized to vote on any proposal to adjourn the meeting solely relating to the solicitation of proxies to authorize the issuance of Supervalu common stock in connection with the Supervalu merger.

Abstaining from Voting

Your abstention from voting will have the following effects:

 

    Abstentions will not be counted for determining whether the share issuance proposal has been approved. However, abstentions can negatively affect the vote on the Supervalu share issuance proposal if their failure to be counted results in less than a majority of all outstanding shares of Supervalu stock being voted.

 

    Abstentions will have the same effect as a vote against the approval of adjournments of the Supervalu special meeting.

 

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How to Vote

You have three options:

 

    Internet: You can submit your proxy over the Internet at the Web address shown on your proxy card(s). Submission of proxies via the Internet will be available 24 hours a day. If you submit your proxy over the Internet, do not return your proxy card(s).

 

    Telephone: You can submit your proxy by telephone by calling the toll-free number on your proxy card(s). Submission of proxies by telephone will be available 24 hours a day. If you submit your proxy by telephone, do not return your proxy card(s).

 

    Mail: You can submit your proxy by mail by simply marking, signing, dating and promptly mailing your proxy card(s) in the postage-paid envelope (if mailed in the United States) included with this joint proxy statement/prospectus.

The named proxies will vote all shares at the meeting for which proxies have been properly submitted (whether by Internet, telephone or mail) and not revoked. If you sign and return your proxy card(s) but do not mark your card(s) to tell the proxies how to vote your shares on each proposal, your proxy will be voted in accordance with the recommendations of Supervalu’s board of directors described in this joint proxy statement/prospectus.

Revoking Your Proxy

If you are the owner of record of your shares, you can revoke your proxy at any time before its exercise by:

 

    sending a written notice to the Corporate Secretary of Supervalu, P.O. Box 990, Minneapolis, Minnesota 55440, that bears a date later than the date of the proxy that is received prior to the Supervalu special meeting and states that you revoke your proxy;

 

    submitting your proxy again over the Internet or by telephone;

 

    signing another proxy card(s) bearing a later date and mailing it so that it is received prior to the special meeting; or

 

    attending the special meeting and voting in person, although attendance at the special meeting will not, by itself, revoke a proxy.

If your shares are held in street name by your broker, you will need to contact your broker to revoke your proxy.

Other Voting Matters

Voting in Person

Please note that you will need an admission ticket or proof that you own Supervalu stock to be admitted to the Supervalu special meeting.

If you are the owner of record of your shares and plan to attend the Supervalu special meeting in person, please indicate this, either by checking the appropriate box when you return your proxy card(s) or by responding affirmatively when prompted during telephone or Internet voting. An admission ticket for record stockholders is printed in the enclosed proxy card together with directions to the meeting. You must bring the admission ticket with you to the special meeting if you wish to be admitted.

If your shares are held for your account in the name of a broker, bank or other nominee, you will need proof of ownership to be admitted to the Supervalu special meeting. A recent brokerage statement or a letter from the broker, bank or other nominee are examples of proof of ownership. If your shares are held in street name and you want to vote in person at the Supervalu special meeting, you must first obtain a written proxy from the broker, bank or other nominee authorizing you to vote the shares, which you must bring with you to the special meeting.

 

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Electronic Access to Proxy Material

This joint proxy statement/prospectus and the documents incorporated by reference are available on Supervalu’s Internet site at www.supervalu.com.

People with Disabilities

Supervalu can provide reasonable assistance to help you participate in the special meeting if you tell Supervalu about your disability and how you plan to attend. Please call or write to Supervalu’s Corporate Secretary at P.O. Box 990, Minneapolis, Minnesota 55440, telephone (952) 828-4154 at least two weeks before the Supervalu special meeting.

Proxy Solicitations

Supervalu is soliciting proxies for the Supervalu special meeting from Supervalu stockholders. Supervalu will bear the entire cost of soliciting proxies from Supervalu stockholders, except that Supervalu and Albertsons will share equally the expenses incurred in connection with the filing of the registration statement of which this joint proxy statement/prospectus forms a part with the SEC and the printing and mailing of this joint proxy statement/prospectus. In addition to this mailing, Supervalu’s directors, officers and employees (who will not receive any additional compensation for their services) may solicit proxies personally, electronically or by telephone. Supervalu has also engaged Innisfree M&A Incorporated, for a fee of approximately $30,000 plus reimbursement of expenses, to assist in the solicitation of proxies. Supervalu and its proxy solicitors will also request that banks, brokerage houses and other custodians, nominees and fiduciaries send proxy materials to the beneficial owners of Supervalu common stock and will, if requested, reimburse the record holders for their reasonable out-of-pocket expenses in doing so. The extent to which these proxy-soliciting efforts will be necessary depends upon how promptly proxies are submitted. You should promptly submit your proxy by telephone or over the Internet or submit your completed proxy card(s) without delay by mail.

Other Business; Adjournments or Postponements

Supervalu is not aware of any other business to be acted upon at the Supervalu special meeting. If, however, other matters are properly brought before the special meeting, your proxies will have discretion to vote or act on those matters according to their best judgment, and intend to vote the shares as the Supervalu board of directors may recommend.

If a quorum is not present at a meeting, those present shall adjourn to such day as they agree by a majority vote, but any meeting of stockholders may be adjourned from time to time by the chairman of the meeting, whether or not a quorum is present. Notice of any adjourned meeting need not be given if the time and place thereof are announced at the meeting at which the adjournment is taken. However, if the adjournment of the special meeting is for more than 30 days or if after the adjournment a new record date is fixed for an adjourned meeting, notice of the adjourned meeting must be given to each stockholder of record entitled to vote at such special meeting. If a quorum is not present at the special meeting, stockholders may be asked to vote on a proposal to adjourn the special meeting to solicit additional proxies. If a quorum is not present at the special meeting, the holders of a majority of the shares entitled to vote who are present in person or by proxy may adjourn the special meeting. If a quorum is present at the special meeting but there are not sufficient votes at the time of the special meeting to approve the issuance of Supervalu common stock in connection with the Supervalu merger, holders of Supervalu stock may also be asked to vote on a proposal to approve the adjournment of the special meeting to permit further solicitation of proxies.

Assistance

If you need assistance in completing your proxy card or have questions regarding the Supervalu special meeting, please contact Innisfree M&A Incorporated at (888) 750-5834, or write to 501 Madison Avenue, New York, New York 10022.

 

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THE MERGERS

Background of the Mergers

The Albertsons board has recognized that, in recent years, the traditional retail grocery and drug store industries in which Albertsons competes have come under significantly increasing competitive pressures. New entrants in various segments of these industries, including operators of supercenters and discount stores (such as Wal-Mart), specialty grocers and large-scale drug retailers have all impacted the competitive landscape. A growing “food away from home” trend has also impacted the traditional retail grocery industry. These pressures have increased the need for Albertsons to optimize its portfolio of assets, as well as to consider potential transactions with strategic partners for its various business units. In response to these pressures and as part of its ongoing oversight and management of Albertsons, the Albertsons board undertakes a formal annual evaluation of Albertsons’ operational initiatives and three-year financial plan and regularly discusses the opportunities to continue to maximize Albertsons’ return on invested capital through the rationalization of its asset portfolio. Beginning in early 2005, these discussions led the board to consider Albertsons’ broader strategic alternatives and prospects for continued operation as an independent company.

At a regular meeting of the Albertsons board of directors on March 23, 2005, the Albertsons board considered potential ways in which it could maximize stockholder value. Albertsons’ management presented the board with initiatives intended to improve Albertsons’ overall operational execution and, at the board’s request, also presented a number of potential extraordinary transaction alternatives, including:

 

    potential acquisition or merger-of-equals transactions with other participants in the retail grocery and drug industries to improve the scale and efficiencies of Albertsons’ operations; and

 

    potential divestitures of various assets of Albertsons that were underperforming or otherwise less than ideally suited to Albertsons’ long-term strategies.

Following discussion of these matters and the challenges and opportunities presented by the changing competitive landscape and industry trends, the Albertsons board determined to retain financial advisors to assist with its consideration of strategic alternatives. In an effort to obtain a thorough analysis, the board instructed management to retain two firms, Goldman Sachs and Blackstone.

Albertsons’ management subsequently contacted Goldman Sachs and Blackstone and asked them to independently consider and evaluate the strategic alternatives available to Albertsons. At various times, Goldman Sachs and Blackstone met independently with management to discuss various alternatives potentially available to Albertsons, including but not limited to those alternatives previously identified by Albertsons’ management. These discussions included detailed consideration of potential divestitures by Albertsons, acquisition and merger candidates and potential recapitalization scenarios.

At a regular meeting of the board held June 1, 2005, Goldman Sachs and Blackstone each discussed with the Albertsons board the competitive conditions in the retail grocery and drug industries and Albertsons’ relative position in these industries. Goldman Sachs and Blackstone also discussed various alternatives potentially available to Albertsons, including those that the board had previously discussed with management. Although Goldman Sachs and Blackstone had performed their analyses independently of one another, the alternatives they discussed with the board had significant similarities. The board also received advice from Jones Day, Albertsons’ outside counsel, regarding the fiduciary duties of the board and other legal matters relating to Albertsons’ exploration of strategic alternatives.

The Albertsons board of directors held a follow-up meeting on June 10, 2005 to continue discussions with Albertsons’ management and its financial advisors regarding Albertsons’ strategic alternatives. At the conclusion of this meeting, the board determined that both Goldman Sachs and Blackstone should continue to work with management on the exploration of strategic alternatives for Albertsons. The Board also determined to meet in mid-July to review these matters further.

 

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The Albertsons board met on July 14, 2005. At that meeting Albertsons’ financial advisors reviewed with the board various potential strategic alternatives available to Albertsons. The financial advisors noted, among other things, the absence of a likely strategic buyer for the entire company or a merger-of-equals candidate. The financial advisors further indicated that a sale of the whole company to a financial buyer, or a consortium of financial buyers, might be a potentially attractive opportunity. The financial advisors also discussed with the board the possibility that the aggregate consideration to be received by Albertsons’ stockholders in any sale of Albertsons might be maximized by selling particular components of Albertsons, such as Albertsons’ standalone drug business, to buyers that might attribute a higher value to those particular assets than buyers of the entire company. The execution risks associated with such a strategy were discussed, including the risk that such a strategy could extend the time that it might take to complete a sale of the entire company.

After deliberation, the Albertsons board unanimously concluded that further analysis was necessary to determine which, if any, of the possible strategic alternatives were attractive. To this end, the board concluded that management and the financial advisors should solicit, on behalf of Albertsons, preliminary indications of interest for an acquisition of Albertsons to determine whether such a transaction would be feasible. The board also concluded that neither Goldman Sachs nor Blackstone should be allowed to participate as equity or debt financing sources for any potential buyers.

During the last two weeks of July 2005, Albertsons, through its advisors, approached eight potential financial buyers, entering into confidentiality agreements with each, and two potential strategic buyers (which did not include Supervalu or CVS) to determine their interest in acquiring Albertsons. Neither of the potential strategic buyers initially expressed an interest in a potential transaction with Albertsons. Albertsons’ management, together with its financial advisors, met with each of the potential financial buyers during the last week of July to discuss Albertsons’ business, assets and financial performance. Each of these potential purchasers was invited to submit a preliminary indication of interest with respect to a possible acquisition of the entire company by August 29, 2005.

On August 1, 2005, Albertsons’ board of directors met to receive an update on the steps taken by management and Albertsons’ advisors to obtain preliminary indications of interest and further evaluate strategic alternatives. Mr. Johnston advised the board that management was continuing to discuss potential divestitures of underperforming assets in two particular geographic areas with potential buyers for those assets (who were not then among the entities with whom a whole-company transaction was being discussed). Mr. Johnston indicated that management would continue working on these divestitures while the board evaluated Albertsons’ broader strategic alternatives.

During the month of August, two of the potential financial buyers informed Albertsons’ financial advisors that they were not interested in pursuing a transaction, while two new potential financial buyers (one of which was the Cerberus group) approached Albertsons about their interest in exploring a transaction. Albertsons negotiated confidentiality agreements with each of these two new potential buyers and provided them with the same financial information that had been provided to the other potential buyers.

On or about August 30, 2005, Albertsons received indications of interest from the eight potential financial buyers (including the Cerberus group) still interested in pursuing a potential transaction with Albertsons. The indications of interest set forth proposed ranges of cash consideration to be paid for an acquisition of all of the outstanding shares of common stock of Albertsons, subject to ongoing due diligence and the negotiation of mutually acceptable agreements.

The board of directors of Albertsons held a regular meeting on September 1, 2005. At the meeting, the board discussed with its financial and other advisors the status of the strategic alternatives process, the actions taken at the board’s direction to solicit indications of interest in a possible acquisition of Albertsons, and the indications of interest that had been received. Representatives of Sullivan & Cromwell LLP, which had been engaged as independent counsel to the board for certain aspects of the strategic alternatives process, made a presentation with respect to the board’s fiduciary duties in connection with its consideration of Albertsons’ strategic

 

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alternatives and related matters. The board also discussed with the financial advisors the increase in stockholder value that could potentially be achieved if Albertsons were to remain independent and both achieve its operating plan and complete certain acquisition and disposition transactions being considered by Albertsons. The Albertsons board considered, among other things, previous analyses that it had reviewed with Albertsons’ management and advisors on the potential benefits and risks of the alternatives available to Albertsons that did not involve a sale of the company. Some of these risks included the increasing competitive pressures facing the company and the possibility that the company would not be able to divest underperforming assets on a piecemeal basis in a timely manner on favorable terms. In deciding whether to pursue further a potential sale of the whole company or the standalone drug business the board also considered the risks that would be involved in moving forward with the sale process, including the potential disruption to the business arising from the uncertainty experienced by employees, suppliers and customers, and the possibility that no attractive bids for the whole company or the standalone drug business would materialize.

Albertsons’ financial advisors discussed with the board possible methods for maximizing the competitiveness of any bidding that took place in connection with the sale of the company. The financial advisors noted that it was unlikely that any single financial sponsor would be able to provide all of the equity funding necessary for an acquisition of the entire company. The board discussed with the financial advisors a proposed strategy for creating consortia of bidders for the entire company. The board also discussed with the financial advisors the potential for interest of strategic buyers in an acquisition of part or all of Albertsons, and the non-consummation risks that might be associated with bids by both financial and strategic buyers. The board also again discussed with its financial advisors whether the value to be received by Albertsons’ stockholders in a sale transaction could potentially be increased by separately marketing Albertsons’ standalone drug business to strategic buyers for that business unit.

After further discussion, the Albertsons board concluded that the potential benefits of pursuing a sale process as one component of its exploration of strategic alternatives exceeded the risks of doing so. The board instructed the financial advisors to seek to form consortia of bidders and to contact additional possible strategic buyers for both the entire company and, separately, its standalone drug business. The board instructed management to issue promptly a press release regarding Albertsons’ exploration of strategic alternatives.

On September 2, 2005, Albertsons issued a press release announcing that it was exploring strategic alternatives to increase stockholder value, including a possible sale of Albertsons.

During the first two weeks of September, with the assistance of Albertsons’ financial advisors, the eight remaining potential financial buyers formed four consortia, in some cases with additional potential co-investors. Albertsons negotiated agreements with various of the potential buyers, including the Cerberus group, under which they were permitted to share information with other members of their consortium, but were prohibited from sharing information with non-consortium members or seeking to form any other alliances with potential bidders outside of their consortium without Albertsons’ consent. These agreements also provided that the potential buyers would be required to permit their financing sources to provide financing to other potential buyers. Certain of the consortia, including the Cerberus group, indicated to Albertsons their willingness to consider a transaction in which the financial buyers would acquire a portion of Albertsons and in which one or more strategic buyers would acquire the other businesses of Albertsons. The financial advisors, at Albertsons’ request, also began the process of approaching additional potential strategic buyers of Albertsons and, separately, its standalone drug business. On September 6, 2005, September 8, 2005, and September 9, 2005, the Albertsons board met to discuss, among other things, the progress of the sale process. The board also discussed with management and the financial advisors that, as the sale process progressed, any potential interest from strategic buyers could result in a reconfiguration of the consortia members.

Also in early September, Jeffrey Noddle, the Chairman and Chief Executive Officer of Supervalu, telephoned Larry Johnston, the Chairman, Chief Executive Officer and President of Albertsons, indicating to Mr. Johnston that Supervalu might be interested in participating in Albertsons’ sale process. On September 22, 2005, Albertsons and Supervalu entered into a confidentiality agreement. On September 30, 2005, Albertsons’ management and financial advisors met with Supervalu management and its financial advisor, Lazard. The

 

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meeting included a management presentation by Albertsons similar to the presentations provided to other interested parties and a preliminary discussion regarding Supervalu’s interest in Albertsons’ core business. Supervalu indicated that any transaction would likely include a significant equity component as part of the consideration to be paid to Albertsons’ stockholders, and would be premised upon the sale by Albertsons of its non-core and standalone drug businesses. At the end of the meeting, both the Albertsons and Supervalu teams concluded that their preliminary discussion merited further investigation and exploration.

On October 6th through 8th, the Supervalu board of directors held a regularly scheduled meeting that focused on Supervalu’s long-range planning. At that meeting, management outlined Supervalu’s existing operating and strategic plan which focused on improvement and growth of Supervalu’s regional chains, local market strategy, supply chain backbone and specialty retailing strategy. Joined by Supervalu’s financial advisor at the meeting, Supervalu management also apprised the Supervalu board of the emerging potential opportunity to participate in the Albertsons sale process. As part of that presentation, Supervalu’s management and financial advisor detailed a plan focused on acquiring key new markets as well as Albertsons premier banners. The board identified the potential transaction as a unique strategic opportunity for Supervalu to acquire Albertsons’ most attractive assets, while separating Albertsons’ other assets and liabilities. Supervalu’s management and financial advisor described their meeting with Albertsons’ senior management, including, in particular, a potential transaction structure where Supervalu would issue equity in the transaction in order to optimize the leverage required to pay transaction consideration to Albertsons’ stockholders. During the course of the meeting, Supervalu’s management and financial advisor summarized potential ranges of values that might be required in order to complete a transaction, including the use of cash proceeds estimated by Albertsons’ management relating to the disposition of Albertsons’ non-core and standalone drug businesses. The Supervalu board authorized management and Lazard, on behalf of Supervalu, to pursue the potential transaction, including the submission of a formal indication of interest.

During the remainder of September and October, Albertsons continued to provide extensive legal and financial information to potential buyers and Albertsons’ management team met with many of the potential buyers, including the Cerberus group and Supervalu. In addition, Albertsons received indications of interest from two grocery companies, including Supervalu and a party referred to as “Potential Strategic Buyer #2,” and from two drug store companies, including CVS. The indication of interest received from Supervalu on October 12, 2005, contemplated an acquisition by Supervalu of the core business of Albertsons and assumed a separate sale of the non-core business and standalone drug business for at least a minimum purchase price that had been communicated to Supervalu by Albertsons’ financial advisors at Albertons’ request. The indication of interest expressed a value of $20 in cash per share and a fixed amount of stock in a combined company per share that would result in approximately 35% of the combined company being owned by former Albertsons stockholders. The indication of interest stated further that Supervalu would be open to working with a financial buyer who could purchase the non-core grocery business.

The Albertsons board of directors met several times in September and October to discuss the indications of interest received from the potential buyers, the financial advisors’ and management’s discussions with the buyer consortia and the availability of financing sources for the prospective buyers. The board formed a special executive committee (which we refer to as the special committee), consisting of six directors, to provide direction to management with respect to time-sensitive tactical decision-making.

During this period, the Cerberus group and Supervalu each considered partnerships with potential strategic and financial bidders, respectively. At the suggestion of Albertsons’ management and financial advisors, and in light of the Cerberus group’s assessment of Supervalu and Supervalu’s indication that it was willing to work with a financial buyer for the purchase of the non-core business, Albertsons notified the Cerberus group and Supervalu that they were permitted to discuss joining into one consortium. On or about October 22, 2005, Supervalu and the members of the Cerberus group began discussions regarding the formation of their consortium. The Cerberus group and Supervalu also indicated in conversations with Albertsons’ management and financial advisors that they would consider including a bidder for the standalone drug business if they were permitted to speak to the interested parties. On October 28, 2005, Supervalu and the Cerberus group entered into a definitive agreement

 

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outlining the allocation of expenses between each party and the terms of exclusivity that their consortium would use to participate in the process. On the basis of this agreement, the Supervalu/Cerberus consortium, along with their financial and legal advisors, commenced an in-depth due diligence process. During this period, Supervalu’s management kept the Supervalu board apprised of their progress.

On November 3, 2005, the Albertsons board of directors met to receive, among other things, an update on the progress that had been made with the various interested parties. Albertsons’ management reported that Albertsons and its advisors had been responding to numerous requests for additional information. The financial advisors noted that “Potential Strategic Buyer #2” had indicated that, notwithstanding its initial indication of interest, it was no longer interested in pursuing an acquisition of the entire company. The board was advised that Potential Strategic Buyer #2 remained interested in engaging in discussions with specific financial bidders regarding the acquisition of certain undisclosed assets in a multi-stage transaction, and concluded that these discussions should proceed.

In early- and mid-November 2005, Albertsons provided draft acquisition agreements and bid procedures to the interested parties for the standalone drug business and whole company transactions. On November 23, 2005, CVS submitted its bid for the standalone drug business, including Albertsons’ La Habra, California distribution center, with alternative valuations based on whether CVS would lease or purchase the other owned real estate associated with the standalone drug business. CVS’s bid included preliminary comments on the draft acquisition agreement that had been provided to it from Albertsons.

On November 28, 2005, the special committee met to receive an update on the sale process. Albertsons’ management and financial advisors discussed with the special committee the bid that had been received from CVS for the standalone drug business. Thereafter, on November 30, 2005, Albertsons received a preliminary bid from the other remaining potential strategic buyer of the standalone drug business. The bid contemplated an acquisition of only Albertsons’ Sav-on drug stores, including all of the owned real estate associated with those stores, but excluding Albertsons’ La Habra, California, distribution center. The bid was not subject to receipt of financing, but was subject to additional due diligence.

The company also received on November 30, 2005, a proposal from one of the financial buyer consortia. This proposal (which is referred to as “Recapitalization Proposal #1”) did not involve the acquisition of the entire company, but rather a significant recapitalization transaction in which (i) Albertsons would agree to acquire a smaller traditional grocery operator affiliated with the proponent, (ii) Albertsons would engage in a leveraged repurchase of 50% of Albertsons’ outstanding common stock at a premium to the then-current trading price, and (iii) the proponent of this transaction would invest $1.0 billion in the equity of Albertsons in exchange for a significant equity position in Albertsons, and would also acquire warrants that would allow it to increase further its ownership position in Albertsons in certain circumstances.

Also on November 30, 2005, Supervalu’s legal advisors sent to the Cerberus group’s legal advisors a draft of a separation agreement allocating the assets and liabilities of Albertsons between Supervalu and the Cerberus group. In the period prior to the Supervalu/Cerberus consortium’s submission of its bid on December 8, 2005, Supervalu and Cerberus and their respective advisors exchanged several drafts of this agreement and the proposed merger agreement, as well as several rounds of comments to those drafts.

On December 1, 2005, Albertsons’ board of directors met at a regular meeting and also discussed the status of the ongoing discussions with the various bidders. Albertsons’ management and financial advisors discussed with the board the two preliminary bids that had been received for the standalone drug business and Recapitalization Proposal #1. Albertsons’ management and financial advisors informed the board that one of the consortia of financial buyers had dropped out of the sale process, leaving the financial buyer that submitted Recapitalization Proposal #1, another consortium of financial buyers, the Supervalu/Cerberus consortium and Strategic Buyer #2 as the parties that had neither submitted an acquisition proposal nor withdrawn from the sale process.

Also on December 1, 2005, the Supervalu board of directors met at a special meeting with Supervalu’s management and financial advisor, Lazard, and its legal advisor, Wachtell, Lipton, Rosen & Katz. During the

 

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course of that meeting, Supervalu management outlined the progress of the sale process to date. The discussions were broad ranging, including Supervalu’s developing relationship with its consortium partners and the consortium’s progress in legal and financial due diligence with Albertsons. Supervalu’s management and financial advisor outlined the terms of Supervalu’s preliminary understanding with the Cerberus group as to the allocation of assets and liabilities between the core and non-core businesses, as well as the proposed contributions of each side to the ultimate consideration to be paid in the transaction. Supervalu’s management noted that, at that point, the consortium’s proposed bid assumed the disposition of the standalone drug business to a third party and the use of the net-of-tax proceeds of that transaction to fund a portion of the consideration to be paid to Albertsons’ stockholders. The Supervalu board agreed to meet again on December 8, 2005 in order to review the financial terms of the Supervalu/Cerberus consortium’s bid.

During the last week of November and first week of December, Albertsons and its legal advisors began discussing with the two potential acquirors of the standalone drug business their bids and negotiated resolutions to some of the issues that were posed by such bids. On December 5, 2005, CVS submitted a revised version of its bid, which Albertsons and its advisors continued to discuss with CVS.

At about this time, Albertsons also received an indication of interest from a potential financial buyer that had not to that point participated in the auction process (“New Potential Financial Buyer”). The proposal was subject to significant due diligence and did not include any financing commitments. The proponent requested a 60-day diligence period.

On December 7, 2005, the consortium consisting of Supervalu and the Cerberus group submitted a markup of Albertsons’ proposed merger agreement under which Albertsons would be acquired by a subsidiary of Supervalu. Also on that day, Albertsons’ financial advisors received a letter from the remaining consortium of financial buyers indicating that the consortium did not believe that an acquisition of the entire company at a price in excess of the then-current market price of Albertsons’ stock (which was, at the time, approximately $23.75 per share) was feasible. This consortium indicated that it would be willing to explore recapitalization transactions with Albertsons, or transactions in which it would acquire Albertsons at a price per share that was less than the then-current trading price (“Recapitalization Proposal #2”).

On December 8, 2005, the Supervalu board of directors convened a meeting with its management and financial and legal advisors. Supervalu’s financial advisor reviewed the financial terms of the proposed offer, including the mix of cash and stock, the apportionment of assets and liabilities between Supervalu and the Cerberus group, and the structure of the transaction. A discussion ensued regarding the fact that, while a buyer for the standalone drug business had yet to be identified by Albertsons, at some point in the near future a leading bidder for those assets was expected to emerge, and that the Supervalu/Cerberus consortium would either have to be expanded to include that party or Albertsons would have to reach a definitive agreement with that party in advance of reaching a definitive agreement with the Supervalu/Cerberus consortium. In addition, Supervalu’s financial advisor provided to Albertsons and its financial advisors an analysis of the financial impact of the transaction on Supervalu, in order to facilitate Albertsons’ analysis of the equity portion of the consideration proposed to be paid. Supervalu’s legal advisor then reviewed the board’s legal duties in the context of the proposed transaction and detailed the Supervalu stockholder actions that would be required to issue Supervalu stock as part of the consideration to be paid to Albertsons’ stockholders. The Supervalu board of directors authorized management to proceed with the submission of a formal bid.

That evening, the Supervalu/Cerberus consortium submitted a bid letter and a draft agreement providing for a separation of Albertsons’ core business from Albertsons’ non-core business. The proposal contemplated that the standalone drug business would be sold prior to the closing of the acquisition of Albertsons by Supervalu and the Cerberus group, and that the standalone drug sale would generate an amount of net proceeds that reflected Albertsons’ expectations for the sale, which expectations had been previously communicated to Supervalu and the Cerberus group. The proposal assumed that a portion of the proposed purchase price would come from the Cerberus group’s purchase of the real estate underlying the standalone drug business. The aggregate consideration that would be payable to Albertsons’ stockholders on a per-share basis under the proposal was $20.50 in cash and 0.182 shares of Supervalu common stock (or approximately 35% of the stock of the combined company).

 

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On December 9, 2005, Albertsons received an indication of interest from Strategic Buyer #2 with respect to some, but not all, of Albertsons’ grocery divisions. Specifically, this strategic buyer offered to purchase Albertsons’ Jewel/Osco and Acme divisions for $5.2 billion. The offer was not subject to financing, but was subject to additional due diligence.

On December 10, 2005, Albertsons’ board of directors reviewed the bids that had been received and considered their attractiveness relative to the other strategic alternatives available to Albertsons, which included remaining independent. During the meeting, Albertsons’ management and financial advisors reviewed in detail the various proposals that had been received by Albertsons. The financial advisors informed the board that the proposal relating to an acquisition of Albertsons by New Potential Financial Buyer appeared to be more an indication of interest than a firm proposal, and that the proponent had previously attempted to participate in the sale process but had been unable to provide evidence of its ability to obtain financing. The Board instructed its financial advisors to seek further information about the proposal.

Albertsons’ management and its financial advisors then discussed with the board the bids for the standalone drug business, noting that, on a per-store basis, the two bids were similar, although only CVS’s bid was for Albertsons’ entire standalone drug business.

The Albertsons board, management and Albertsons’ financial and legal advisors then discussed the proposal made by the Supervalu/Cerberus consortium. Albertsons’ legal and financial advisors commented on the complexity of the proposal and the increased consummation risk that was inherent in the multi-faceted nature of the proposal. The board also discussed Recapitalization Proposal #1 and Recapitalization Proposal #2, neither of which provided for the acquisition of Albertsons, and the offer from Strategic Buyer #2 to acquire Albertsons’ Jewel/Osco and Acme divisions.

The Albertsons board and its advisors then discussed the relative merits of the various options available to Albertsons if it were to remain independent, and management reviewed its five-year financial plan with the board. The strategic options discussed included divestitures of business divisions and/or underperforming assets alone or in combination with cost rationalization plans and recapitalization transactions, and continuing to retain Albertsons’ current portfolio of businesses and assets and to execute Albertsons’ operational strategies. The Albertsons board considered, among other things, the possible effects of the various alternatives on Albertsons’ financial performance, the potential for the alternatives to return value to Albertsons’ stockholders, and potential trading multiples of Albertsons’ stock in each of the scenarios. The Albertsons board also considered, however, the risks associated with the various alternatives, including non-consummation risks associated with the transactional and cost rationalization alternatives and the risk that the execution of Albertsons’ five-year financial plan would not proceed as well as planned due to competitive pressures and other operational risks. The Albertsons board also considered the risk that piecemeal divestitures of Albertsons’ assets would not generate the expected proceeds and could not be completed efficiently or in a timely fashion. The Albertsons board also considered the operational and liquidity risks that would result from the significantly higher levels of indebtedness and interest expense in the recapitalization scenarios. With regard to the Supervalu/Cerberus/CVS bid, the board noted, among other things, the relatively large cash component of the Supervalu/Cerberus/CVS bid and therefore the relatively high certainty of value to be received by Albertsons stockholders, and believed that the transactions did not pose an unacceptable level of non-consummation risk provided that potential antitrust concerns were adequately addressed. Consequently, the board believed that the risks of not realizing the potential values associated with the other strategic alternatives, relative to the risks of not realizing the value associated with the Supervalu/Cerberus/CVS bid, were such that, on a risk-adjusted basis, the Supervalu/Cerberus/CVS bid offered the highest consideration then available to Albertsons stockholders.

The board agreed to meet again on December 17, 2005, and authorized Albertsons’ legal and financial advisors to continue their communications with several of the bidders, including the Supervalu/Cerberus consortium and CVS. The board instructed its advisors to seek further information about the proposals and inform the bidders that final bids would be due in one week.

 

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From December 11, 2005 through December 15, 2005, Albertsons’ legal and financial advisors had discussions with the bidders. At Albertsons’ request, its advisors had a number of discussions with the representatives of CVS and the Supervalu/Cerberus consortium, which had submitted the most detailed and potentially attractive offers. On the evening of December 11, 2005, Albertsons’ advisors had discussions with Supervalu’s advisors regarding the proposed structure of the transactions. Albertsons’ and Supervalu’s legal advisors continued to have discussions throughout the course of the day on December 12, 2005 on various subjects, including the proposed structure of the transactions, the division of assets and liabilities among the consortium partners and the proposed consideration. On December 13, 2005, Albertsons’ legal advisors sent a revised version of the merger agreement to Supervalu’s legal advisors. On December 14, 2005, Albertsons and its advisors had discussions with Supervalu and the Cerberus group and their respective advisors about, among other things, the separation agreement, including the details of the Cerberus group’s assumption of certain liabilities and payment obligations under the separation agreement. On December 15, 2005, Albertsons’ legal advisors conveyed Albertsons’ comments on the separation agreement to the legal advisors for Supervalu and the Cerberus group. During this time, Albertsons’ financial advisors also agreed on behalf of Albertsons to permit CVS to coordinate with Supervalu and the Cerberus group to present an integrated proposal for an acquisition of the entire company. Simultaneously, Albertsons’ legal and financial advisors began a due diligence investigation of Supervalu in light of the stock component of its offer.

On or about December 12, 2005, representatives from Supervalu and CVS and their respective legal advisors met to discuss the potential for adding CVS to the Supervalu/Cerberus consortium, and between December 12th and 16th proceeded to negotiate a draft asset purchase agreement for the purchase of the standalone drug business, based on a draft of the asset purchase agreement that CVS and its advisors had previously exchanged with Albertsons and its advisors. During this period, the Cerberus group and CVS also discussed the purchase of the real estate underlying the standalone drug business by the Cerberus group, with a lease to CVS. Ultimately, during the course of negotiations, CVS and the Cerberus group concluded that CVS would seek to purchase the real estate underlying the standalone drug business without the participation of the Cerberus group. During the same period, Supervalu and the Cerberus group also continued to negotiate the draft separation agreement, and circulated several drafts of and sets of comments on that agreement.

On December 16, 2005, representatives of Supervalu, the Cerberus group and CVS submitted a revised proposal to Albertsons. The revised proposal indicated that Supervalu, the Cerberus group and CVS would acquire Albertsons through a series of related transactions in which Albertsons would sell its standalone drug business to CVS, and separate its core and non-core businesses, which would be acquired by Supervalu and the Cerberus group, respectively. The per-share consideration proposed to be paid to Albertsons’ stockholders was $20.00 in cash and 0.182 shares of Supervalu common stock. The revised proposal delivered to Albertsons also included a draft of the standalone drug sale agreement. The special committee of the Albertsons board of directors met on December 16, 2005 to receive an update from Albertsons’ advisors and management as to the status of the discussions with the bidders since the December 10th board meeting.

On December 17, 2005, Albertsons’ full board met to consider the proposals submitted to Albertsons, as well as Albertsons’ other strategic alternatives, including remaining independent. The meeting was attended by, among others, representatives of Houlihan Lokey, which was retained by Albertsons to provide solvency advice and also to provide a third fairness opinion. Houlihan Lokey’s fee arrangements did not provide for any fee that was contingent on the completion of any transaction.

At the December 17th meeting, Albertsons’ management and financial and legal advisors discussed with the board in depth the proposal made by the Supervalu/Cerberus/CVS consortium, noting, among other things, the purchase price and the consummation risk that resulted from the fact that the three components of the proposal (the sale of the core business, the sale of the non-core business, and the sale of the standalone drug business) were each subject to specific individual conditions and were further cross-conditioned upon each other. The board also discussed with management and its advisors Recapitalization Proposal #1, as well as the alternatives available to Albertsons if it were to stay independent, including the various alternatives that the board had considered at its December 10, 2005 meeting. In addition, the board considered an analysis of a standalone plan

 

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that assumed the successful disposition of certain underperforming assets and the execution of a related cost rationalization plan. The board was also informed at this meeting that further discussions with the proponents of the other bids presented at the December 10th meeting had not resulted in meaningful modifications to the prior proposals. Accordingly, the board continued to believe that, on a risk-adjusted basis, the bid by the Supervalu/Cerberus/CVS consortium continued to offer an opportunity to obtain a current value for the outstanding stock of Albertsons that was more favorable than that which would likely be obtained under the other alternatives available to Albertsons.

The Albertsons board concluded that Albertsons should continue to pursue a possible transaction with the Supervalu/Cerberus/CVS consortium, but that Albertsons’ management and advisors should seek to negotiate increased consideration and improved contractual terms. The board instructed its advisors to inform the consortium that it would need to provide, by noon on December 18, 2005, a final offer price and revised positions on unresolved contract terms.

Albertsons’ financial and legal advisors engaged in discussions with the advisors of the consortium during the next 24 hours. When the Albertsons board reconvened on December 18, 2005, Albertsons’ financial advisors reported that the consortium had increased its offer price by $0.25 per share, to an aggregate consideration of $20.25 in cash and 0.182 shares of Supervalu common stock for each share of Albertsons common stock. Albertsons’ legal advisors reported that progress had been made on the various contracts for the transaction. Albertsons’ advisors informed the board that there continued to be issues relating to consummation risk, including the proposed allocation of risks relating to divestitures that could potentially be required if antitrust concerns were raised. Albertsons’ management, advisors and the board also discussed the status of Albertsons’ due diligence investigation of the consortium members, including, in particular, Supervalu. The board instructed management and Albertsons’ advisors to continue negotiating economic terms and transaction documents with the Supervalu/Cerberus/CVS consortium, finalize Albertsons’ due diligence investigation of the consortium members, and arrange for the board to meet on December 21, 2005, to consider a final proposal from the consortium.

Between December 18 and December 21, 2005, Albertsons’ management and advisors negotiated with the Supervalu/Cerberus/CVS consortium. Among other things, during this three-day period the respective legal advisors of the parties exchanged several drafts and rounds of comments on the merger agreement, separation agreement and standalone drug sale agreement, as well as the ancillary documents and schedules to each of those agreements. In addition, Albertsons’ management and advisors had numerous discussions with members of the Supervalu/Cerberus/CVS consortium and their advisors on the various terms of the agreements, including the proposed structure of the transactions and the interrelation between each of the agreements, the consideration proposed to be paid to the stockholders of Albertsons, the conditions to closing of the transactions, the termination fees and provisions, and the scope of the representations, warranties and covenants in the various agreements.

When the Albertsons board of directors reconvened on December 21, 2005, Albertsons’ legal advisors reported to the board that the most significant issue that remained unresolved in the transaction agreements was the allocation of antitrust risk between Supervalu and Albertsons in relation to the sale of Albertsons’ core business to Supervalu. The board instructed Albertsons’ management and advisors to communicate to Supervalu and its advisors that Albertsons would not accept the proposed allocation of antitrust risk. The board also instructed Albertsons’ management and financial advisors to continue to seek an increase in the price offered by the consortium. Negotiations on these matters continued as the board meeting proceeded. Albertsons’ management and advisors discussed with the board the business, tax, and accounting due diligence investigation that had been conducted on the members of the consortium, particularly Supervalu. The board then instructed management to continue discussions with the consortium and reconvene the board as soon as practicable.

Albertsons’ management and advisors negotiated with the Supervalu/Cerberus/CVS consortium and their management and advisors over the course of the night on the allocation of antitrust risk and potential compromises, and the proposed economic terms of the transaction. On the morning of December 22, 2005, the

 

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Supervalu/Cerberus/CVS consortium communicated that it would be willing to increase the consideration to $20.31 in cash and 0.182 shares of Supervalu common stock for each share of Albertsons common stock. In addition, the consortium made a proposal seeking to resolve Albertsons’ antitrust concerns, which included an expanded divestiture commitment and an agreement to pay an increased termination fee, of which the Cerberus group would contribute a significant portion, in the event that Supervalu’s board changed its recommendation as a result of antitrust concerns.

On the morning of December 22, 2005, the Supervalu board held a meeting to review the developments in negotiations and confirmed its support for Supervalu’s management to proceed with the transaction on the terms previously authorized by the board.

On December 22, 2005, subsequent to Albertsons’ receipt of this revised proposal, the Albertsons board met and, after discussion with Albertsons’ management and advisors, determined, among other things, that the revised proposal did not satisfactorily resolve the risk of non-consummation related to antitrust. The board decided to reject the Supervalu/Cerberus/CVS consortium’s proposal. The board directed management to engage in discussions with interested parties with respect to the sale of the non-core business and to continue preparing materials for the board’s regular, annual review of Albertsons’ operating initiatives and three-year plan, which had previously been scheduled for January 18 and 19, 2006.

On December 23, 2005, each of Albertsons, Supervalu and CVS issued a press release announcing termination of discussions regarding the potential sale of Albertsons.

Over the next several weeks, Albertsons’ management continued to work toward a sale of the non-core business. During the same period, Supervalu and the Cerberus group considered ways in which to address the antitrust concerns identified by Albertsons and ultimately entered into negotiations for the sale of Supervalu’s Cub-branded stores in Chicago to the Cerberus group that would take place if a transaction with Albertsons were revived. On or about January 10, 2006, Mr. Noddle called Mr. Johnston to tell him that Supervalu and the Cerberus group were working on a revised proposal that might resolve Albertsons’ antitrust and other concerns. On January 16, 2006, the Supervalu board had a meeting at which Supervalu management reviewed, and the Supervalu board approved, the sale of such stores and the submission of a revised proposal to Albertsons.

On January 17, 2006, Mr. Noddle sent a letter to Mr. Johnston on behalf of the consortium in which he reiterated the interest of the Supervalu/Cerberus/CVS consortium in the transactions discussed in December, and proposed an increase in the per-share consideration to be offered to Albertsons’ stockholders to $20.35 per share in cash and 0.182 shares of Supervalu common stock (or approximately 35% of the total of the combined company). The letter also stated that in order to greatly reduce Albertsons’ exposure to the antitrust risk associated with a potential transaction, Supervalu and the Cerberus group would be willing to enter into a transaction in which Supervalu would divest its Cub-branded stores in Chicago to the Cerberus group shortly after the execution of transaction agreements with Albertsons and that Supervalu’s counsel, Wachtell, Lipton, Rosen & Katz, had communicated further details of such proposal to Albertsons’ counsel, Jones Day.

The Albertsons board of directors met for two days of regularly scheduled meetings on January 18 and 19, 2006. During this two-day board meeting, the board received presentations from Albertsons’ management team related to operational initiatives, proposed divestitures of underperforming assets and Albertsons’ three-year financial plan. After its review with management of the stand-alone plan, the board, which had previously been informed of Supervalu/Cerberus/CVS consortium’s revised proposal, commenced its consideration of the revised proposal. After discussion with Albertsons’ management and advisors, the board determined on January 19th that the consortium’s proposed allocation of antitrust risk was largely acceptable, directed Albertsons’ legal advisors to work with the consortium’s legal advisors to finalize the transaction agreements, directed Albertsons’ management and financial advisors to seek an increase in the price offered by the consortium, and scheduled a meeting of the board on January 22, 2006, to consider the consortium’s proposal further. The board also instructed management to issue a press release prior to the opening of the financial markets the following

 

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morning indicating that Albertsons had received a proposal from the Supervalu/Cerberus/CVS consortium and that the board had authorized management and its advisors to enter into negotiations regarding the potential sale of the entire company.

Albertsons’ management and legal advisors worked with the consortium and its advisors from January 19, 2006 to January 22, 2006 to finalize the transaction agreements. Following the Albertsons’ board meeting on January 19, 2006, Albertsons’ management and advisors re-engaged in discussions with the Supervalu/Cerberus/CVS consortium and their advisors on a variety of subjects, including the terms of the merger agreement, separation agreement and standalone drug sale agreement. Among other things, the parties discussed the proposed consideration to be paid to the stockholders of Albertsons, the proposed allocation of antitrust risk, the allocation of assets and liabilities between the members of the Supervalu/Cerberus/CVS consortium, the arrangements relating to employees and employee benefits, and post-closing transition arrangements. These discussions continued over the course of January 20, 2006 and January 21, 2006, as the legal advisors for the various parties exchanged several drafts and rounds of comments to the merger agreement, separation agreement and standalone drug sale agreement, as well as the ancillary agreements and schedules to those documents. Similarly, during this time Albertsons’ management and financial advisors continued to seek increases in the proposed consideration to be paid to the stockholders of Albertsons by the Supervalu/Cerberus/CVS consortium. During the time period between January 19, 2006 and January 21, 2006, Supervalu and the Cerberus group and their respective legal advisors also worked to finalize the documentation for the sale of the Cub Chicago stores to the Cerberus group.

The Albertsons board of directors reconvened on January 22, 2006 to consider further the consortium’s proposal. Albertsons’ management and financial advisors indicated that efforts to obtain a further increase in the consideration to be received by Albertsons’ stockholders had been unsuccessful and that it was unlikely that any such increase could be obtained. Representatives of Jones Day summarized for the board the terms of the transaction agreements and other legal aspects of the proposal, and representatives of Sullivan & Cromwell and Jones Day reviewed with the board its fiduciary duties in connection with making a decision with respect to the consortium’s proposal.

At that meeting, each of Goldman Sachs, Blackstone and Houlihan Lokey delivered to the Albertsons board its oral opinion, subsequently confirmed in writing, to the effect that, as of such date and based upon and subject to the factors and assumptions set forth in their respective written opinions, the merger consideration to be received by the holders of New Albertsons common stock (formerly the holders of Albertsons common stock) in the Supervalu merger was fair, from a financial point of view, to such holders. The full text of the written opinions of each of Goldman Sachs, Blackstone and Houlihan Lokey are attached as Annexes C, D, and E, respectively, to this joint proxy statement/prospectus.

Following additional discussion and deliberation, the Albertsons board of directors unanimously approved the merger agreement, the separation agreement and the standalone drug sale agreement and the transactions contemplated thereby, and unanimously resolved to recommend that Albertsons’ stockholders vote to adopt the merger agreement.

Based on its previous advice to the Supervalu’s board of directors, on January 22, 2006, Lazard delivered to the Supervalu board its written opinion to the effect that, as of such date and based upon and subject to the factors and assumptions set forth in its written opinion, the consideration to be paid by Supervalu in the Supervalu merger, after giving effect to the other transactions contemplated by the merger agreement and the other transaction agreements, was fair, from a financial point of view, to Supervalu. The full text of the written opinion of Lazard is attached as Annex F to this joint proxy statement/prospectus.

The merger agreement, the separation agreement and the standalone drug sale agreement were executed by Albertsons and the other parties thereto on January 22, 2006. Supervalu’s sale of the Chicago Cub stores to the Cerberus group was also consummated on January 22, 2006. On January 23, 2006, prior to the open of trading on the NYSE, Albertsons, Supervalu and CVS issued press releases announcing the transactions.

 

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Albertsons’ Reasons for the Mergers and Recommendation of Albertsons’ Board of Directors

The Albertsons board of directors believes that the merger agreement and the transactions are advisable and fair to and in the best interests of Albertsons and its stockholders. Accordingly, the Albertsons board of directors has approved the merger agreement and the transactions, and recommends that Albertsons’ stockholders vote FOR the adoption of the merger agreement.

As described above under “—Background of the Mergers,” the Albertsons board of directors, prior to and in reaching its decision at its meeting on January 22, 2006, to approve the merger agreement and the transactions, consulted on numerous occasions with Albertsons’ management and Albertsons’ financial and legal advisors and considered a variety of factors weighing positively in favor of the transactions, including, among others, the following:

 

    Each share of New Albertsons common stock issued to holders of Albertsons common stock in the reorganization merger and outstanding immediately prior to the Supervalu merger will be converted into the right to receive $20.35 in cash plus 0.182 shares of Supervalu common stock. Based on the $32.65 twenty-day trading average for a share of Supervalu’s common stock for the period ended January 20, 2006 (the last trading day prior to the execution of the merger agreement), the value of 0.182 shares of Supervalu common stock was approximately $5.94, resulting in an approximate implied value to stockholders of $26.29 per share of New Albertsons common stock. This value represents approximately a 27% premium to the $20.73 closing price for Albertsons common stock on the NYSE on September 1, 2005, the trading day before Albertsons issued a public announcement that it was considering its strategic alternatives, and a premium of 29.5%, 27.6% and 18.7%, respectively, over the average closing price of Albertsons common stock on the NYSE for the four-week, six-month and twelve-month trading periods, respectively, ended September 1, 2005.

 

    Over 75% of the consideration payable in the Supervalu merger is cash, so that the transaction will provide Albertsons stockholders with immediate liquidity and certainty of value with respect to the majority of their investment. This opportunity to receive cash based upon a premium valuation compared favorably to other alternatives that the Albertsons board considered, including alternatives in which Albertsons would remain independent and Albertsons stockholders would be subject to execution risks associated with Albertsons’ operational strategies.

 

    The stock component of the consideration payable in the Supervalu merger will provide Albertsons stockholders with an opportunity to participate in the prospects of the combined business, consisting of the core business and Supervalu’s business, that will be owned and operated by Supervalu:

 

    This stock consideration will allow Albertsons stockholders to participate in the growth and opportunities of Supervalu after the completion of the Supervalu merger. The strategic nature of the transactions, which will combine Albertsons’ core business and Supervalu’s business to create one of the largest grocery store operators in the United States, with pro forma combined annual sales expected to exceed $40 billion, should provide the combined company with a strong foundation for improved performance. Albertsons’ stockholders as a group will own approximately 35% of the outstanding Supervalu common stock on a fully diluted basis immediately following the Supervalu merger.

 

    Because the stock portion of the merger consideration is a fixed number of shares of Supervalu common stock, Albertsons’ stockholders will benefit from any increase in the trading price of Supervalu common stock between the announcement of the transactions and the completion of the mergers, as well as any increase after the completion of the mergers.

 

   

The Albertsons board of directors’ analyses of the possible alternatives to the transactions, including continuing to operate Albertsons on an independent basis, divesting certain of Albertsons’ assets and operations, and/or engaging in recapitalization transactions, and the risks associated with these alternatives, each of which the board of directors determined not to pursue in light of its belief that the

 

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sale of the entire company in the transactions was in the best interest of the stockholders. The board considered, among other things, the execution risks inherent in the various alternatives available to the company if it chose to remain independent, including the risk of increasing competitive pressures and a lack of attractive and timely opportunities to divest underperforming assets.

 

    The recent and historical information concerning Albertsons’ and Supervalu’s respective businesses, financial condition and performance, operations, management, competitive positions, prospects and stock performance, including the results of the due diligence review of Supervalu’s businesses and operations. These reviews generally reflected positively on Supervalu and the value of the Supervalu common stock proposed to be received by the stockholders of Albertsons.

 

    The fact that Albertsons had conducted an extensive public process to elicit interest from prospective buyers of both the entire company and its standalone drug business, and had also engaged in efforts to sell various underperforming assets and operations over an extended period of time. The process relating to the possible sales of the entire company and its standalone drug business, which was managed through nationally recognized financial advisors, was announced publicly and resulted in contacts with ten different potential financial buyers, eight potential strategic buyers in the grocery industry, and four potential strategic buyers in the retail pharmacy industry. The proposal made by the Supervalu/Cerberus/CVS consortium represented the only actionable proposal to acquire the entire company at a price higher than the then-current price per share of Albertsons common stock. Moreover, in light of the extensive process that had been employed, the Albertsons board believed that it was unlikely that a more attractive proposal would be forthcoming from any other bidder.

 

    The board received the opinions, each dated as of January 22, 2006, of Goldman Sachs, Blackstone, and Houlihan Lokey, to the effect that, as of the date of the opinions and subject to the assumptions made, matters considered and limitations on the review undertaken, described in their respective opinions, the merger consideration to be received by holders of New Albertsons common stock (formerly holders of Albertsons common stock) in the Supervalu merger was fair from a financial point of view to such holders. The full text of the opinion of Goldman Sachs is attached as Annex C to this joint proxy statement/prospectus, the full text of the opinion of Blackstone is attached as Annex D to this joint proxy statement/prospectus, and the full text of the opinion of Houlihan Lokey is attached as Annex E to this joint proxy statement/prospectus. Albertsons stockholders are urged to and should read these opinions carefully and in their entirety.

 

    The fact that, assuming the charter amendment is adopted and becomes effective and the Supervalu merger occurs, Albertsons stockholders who dissent from the reorganization merger will be entitled to appraisal rights, as described in the section entitled “The Mergers—Appraisal Rights of Albertsons Stockholders” beginning on page 92.

 

    The Albertsons board of directors’ belief, in light of divestitures made by Supervalu in connection with entering into the merger agreement, the provisions of the transaction agreements and other factors, that the transactions do not present an unacceptable level of non-consummation risk. In particular, these divestitures significantly mitigated the potential risks of non-consummation as a result of antitrust concerns.

 

    The terms and conditions of the merger agreement, including:

 

    the terms of the merger agreement providing that, under certain circumstances, and subject to certain conditions more fully described in the section entitled “The Transaction Agreements—The Merger Agreement—Covenants and Agreements—No Solicitation” beginning on page 108, Albertsons can furnish information to and conduct negotiations with a third party in connection with an unsolicited proposal for a business combination or acquisition of Albertsons that is reasonably likely to lead to a superior proposal and the Albertsons board of directors can terminate the merger agreement in order to pursue a superior proposal;

 

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    the limited circumstances in which the board of directors of Supervalu may change or modify its recommendation to its stockholders to approve the issuance of shares of Supervalu common stock in the merger, and Supervalu’s agreement to pay a termination fee of $135 million to Albertsons in the event that the board of directors of Supervalu changes or modifies its recommendation, as described in the section entitled “The Transaction Agreements—The Merger Agreement—Termination Fees” beginning on page 114;

 

    Supervalu’s agreement to pay a termination fee to Albertsons of $250 million in the event that the merger agreement is terminated due to a failure to obtain necessary antitrust clearances under certain circumstances, and subject to certain conditions more fully described in the section entitled “The Transaction Agreements—The Merger Agreement—Termination Fees” on page 114;

 

    the absence of a financing condition to the obligations of Supervalu to complete the transactions;

 

    the conditions to the transactions, which the board believes are reasonable and can reasonably be expected to be satisfied; and

 

    the provision for three members of the Albertsons board of directors to be appointed to the Supervalu board of directors, which the board believes will provide an enhanced degree of continuity with respect to the oversight of the conduct of the core business as part of Supervalu’s overall operations following the Supervalu merger.

These terms and conditions enhanced the attractiveness of the proposal by the Supervalu/Cerberus/CVS consortium by decreasing the non-consummation risk of the transactions while maintaining for Albertsons the right to interact with potentially interested third parties in specified circumstances.

 

    The terms and conditions of the separation agreement and the standalone drug sale agreement, including:

 

    Cerberus’ agreement to pay a termination fee of $100 million (of which Albertsons would be entitled to two-thirds) in the event that the separation agreement is terminated under certain circumstances, as described in the section entitled “The Transaction Agreements—The Separation Agreement—Termination Fees” on page 124;

 

    the absence of financing conditions to the obligations of Cerberus and CVS to complete the separation and the standalone drug sale, respectively; and

 

    the conditions to the completion of the separation and the standalone drug sale, which the board believes are reasonable and can reasonably be expected to be satisfied.

These terms and conditions enhanced the attractiveness of the proposal by the Supervalu/Cerberus/CVS consortium by decreasing the non-consummation risk of the transactions.

In addition to these factors, the Albertsons board of directors also considered the potential adverse impact of other factors weighing negatively against the transactions, including, among others, the following:

 

    The potentially disruptive effect the announcement and pursuit of the transactions might have on:

 

    management and other resources available for the continued operation of Albertsons business in the ordinary course;

 

    Albertsons’ ability to attract and retain key personnel; and

 

    Albertsons’ ability to retain and attract customers and to maintain and grow sales.

The Albertsons board considered the negative consequences of these effects, particularly in the event that the contemplated transactions were not consummated.

 

    The risk that, notwithstanding the likelihood of the transactions being completed, the transactions might not be completed, including the effects that a failure to complete the transactions might have on:

 

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    the trading price of Albertsons common stock; and

 

    Albertsons’ operating results, including the costs incurred in connection with the transactions.

 

    The completion of each transaction being conditioned on the completion of each other transaction. The Albertsons board considered, among other things, the increased risk of non-consummation created by the mutually-dependent nature of the transactions.

 

    The fact that, because a portion of the consideration to be received by stockholders of New Albertsons (successors to stockholders of Albertsons) is a fixed number of shares of Supervalu common stock, Albertsons stockholders could be adversely affected by a decrease in the trading price of Supervalu common stock, and the fact that the merger agreement does not provide Albertsons with a price-based termination right or similar protection in relation to such a decrease.

 

    The limitations imposed in the merger agreement on Albertsons’ ability to pursue or engage in alternative transactions.

 

    The requirement that Albertsons pay to Supervalu a termination fee of $276 million if the merger agreement is terminated under certain circumstances, as described in the section entitled “The Transaction Agreements—The Merger Agreement—Termination Fees” beginning on page 114. The Albertsons board considered the negative consequences of this termination fee, including the possible effects on the willingness of other potentially interested parties to make proposals to acquire Albertsons.

 

    The fact that the consideration to be received by stockholders of New Albertsons (as former stockholders of Albertsons) in the Supervalu merger will be immediately taxable in its entirety for U.S. federal income tax purposes.

 

    The opportunities for growth and the potential for increased stockholder value if Albertsons were to remain independent, divest some of its assets and businesses and/or engage in recapitalization transactions. The Albertsons board considered, among other things, the potential for increases in stockholder value under the other strategic alternatives available to Albertsons, including remaining independent.

 

    The risks described in the section entitled “Risk Factors” beginning on page 20.

The Albertsons board of directors also considered the interests that certain executive officers and directors of Albertsons may have with respect to the transactions in addition to their interests as stockholders of Albertsons generally, as described in the section entitled “—Interests of Albertsons’ Directors and Executive Officers in the Mergers” on page 85.

The Albertsons board of directors concluded that the positive factors significantly outweighed the negative factors described above. This discussion of the information and factors considered by the Albertsons board of directors includes material positive and negative factors considered by the Albertsons board of directors, but it is not intended to be exhaustive and may not include all of the factors considered by the Albertsons board of directors. In reaching its determination to approve and recommend the merger agreement and the transactions, the Albertsons board of directors did not find it useful to and did not quantify or assign any relative or specific weights to the various factors that it considered in reaching its determination that the merger agreement and the transactions are advisable and fair to and in the best interests of Albertsons and its stockholders. Rather, the Albertsons board of directors viewed its position and recommendation as being based on an overall analysis and on the totality of the information presented to and factors considered by it. In addition, in considering the factors described above, individual members of the Albertsons board of directors may have given differing weights to different factors.

After considering this information, the Albertsons board of directors approved, among other things, the merger agreement and the transactions, and recommended that Albertsons’ stockholders adopt the merger agreement.

 

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Supervalu’s Reasons for the Mergers and Recommendation of Supervalu’s Board of Directors

Supervalu’s board of directors has approved the merger agreement and has determined that it is advisable to enter into the Supervalu merger. Supervalu’s board of directors recommends that Supervalu stockholders vote FOR the proposal to authorize the issuance of Supervalu common stock in connection with the Supervalu merger at the Supervalu special meeting.

In reaching its conclusion to approve the merger agreement and the related transactions and to recommend that Supervalu stockholders authorize the issuance of Supervalu common stock in connection with the Supervalu merger, the Supervalu board considered the following factors as generally supporting its decision to enter into the transaction agreements.

Strategic Considerations. Supervalu’s board believes that the acquisition of the core business of Albertsons through the Supervalu merger will provide Supervalu a number of significant strategic opportunities and benefits, including the following:

 

    The transactions present a unique strategic opportunity that would not likely be otherwise available. In this regard the board took into account the fact that the transactions were structured so as to afford Supervalu, on the one hand, with the opportunity to acquire at closing only those assets of Albertsons that were most attractive to Supervalu, and, on the other hand, with the ability to separate the assets and liabilities that will be acquired by the Cerberus group and CVS in connection with their respective acquisitions of the non-core business and standalone drug business.

 

    The Supervalu merger will significantly increase Supervalu’s retail footprint and supply chain network, making it the second-largest supermarket chain in the United States with approximately 2,500 stores nationwide, and adding stores in many new markets. Supervalu’s management expects the combined company to have annual sales of approximately $44 billion, making it one of the Fortune 50 companies.

 

    The Supervalu merger will add prestigious supermarket brands to Supervalu’s retail portfolio. The Acme Markets, Bristol Farms, Jewel-Osco, Shaw’s Supermarkets, and Star Markets supermarkets, and the Albertson’s banner supermarkets in southern California, Nevada, and the northwestern United States have strong market presence in their respective regions, including the number one or number two positions in Chicago, Las Vegas, Philadelphia, Boston, Boise, and Southern California. Additionally, there is little overlap between the footprints of Supervalu and the core business. The board considered that the transactions provide a unique opportunity for Supervalu to acquire leading positions in several large and growing markets.

 

    Supervalu’s management believes that the combined company should produce pre-tax synergies of approximately $150 to $175 million by the end of the third full year. These synergies include approximately $75 to $85 million due to better economies of scale across the new retail footprint (including increased purchasing leverage and savings on private-label goods), approximately $25 to $30 million due to optimization of the supply chain network (including reduction of overlaps in the supply chain network and the application of Supervalu’s supply chain expertise to the distribution network of the core business), and approximately $50 to $60 million due to corporate synergies (including cost reductions due to elimination of redundant corporate overhead costs). The Supervalu merger is expected to be immediately accretive to Supervalu’s per share earnings, excluding one-time costs of approximately $145 million. While these synergies reflect management’s estimates, the Supervalu board recognized that there could be no assurance that they would be achieved.

 

    The Supervalu merger will expand Supervalu’s operations in the higher-margin retail segment. Following the effective time, the combined company will derive approximately 80% of its revenue and 89% of its earnings before interest, taxes, depreciation and amortization (or “EBITDA”) from the retail segment and 20% of revenue and 11% of EBITDA from the supply chain segment, while Supervalu currently derives 53% of revenue and 67% of EBITDA from retail and 47% of revenue and 33% of EBITDA from supply chain.

 

    The combined company will be able to draw on the talented and experienced management and associates from both Supervalu and Albertsons, and to share the best practices from both companies.

 

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Other Factors Considered by the Supervalu Board. In addition to considering the strategic factors outlined above, the Supervalu board considered the following additional factors, all of which it viewed as generally supporting its decision to approve the transactions:

 

    historic information concerning Supervalu’s and Albertsons’ respective businesses, financial performance and condition, operations, management, competitive positions and stock performance, which comparisons generally informed the board’s determination as to the relative values of Supervalu, Albertsons and the combined companies, and generally reflected positively on the value of the proposed acquisition;

 

    the results of the due diligence review of Albertsons’ businesses and operations which were generally favorable to Albertsons;

 

    management’s recommendation in support of the merger agreement and management’s assessment that the proposed combination was likely to meet certain criteria they deemed necessary for a successful combination—strategic fit, acceptable execution risk, and financial benefits to Supervalu and Supervalu’s stockholders;

 

    Supervalu’s history of managing a variety of retail formats and successfully integrating acquisitions, which the Supervalu board believes reduces the execution risk of the transactions;

 

    the current and prospective competitive environment in which grocery retailers such as Supervalu operate, in which the economies of scale provided by the proposed acquisition would be a significant advantage;

 

    the financial analyses and presentations of Supervalu’s financial advisor and its opinion that, as of January 22, 2006, the consideration to be paid by Supervalu in the Supervalu merger to former Albertsons stockholders (who will then be New Albertsons stockholders), after giving effect to the other transactions, was fair, from a financial point of view, to Supervalu (the written opinion of Lazard is attached as Annex F to this joint proxy statement/prospectus and discussed in detail under “—Opinion of Supervalu’s Financial Advisor” beginning on page 77);

 

    the fact that Supervalu stockholders will continue to own approximately 65% of the combined company immediately following the mergers on a fully diluted basis;

 

    the board’s belief that there is a low risk of material regulatory impediments to the transactions;

 

    the structure of the transactions, including the fact that the reorganization merger and the separation together reduce Supervalu’s exposure to the historic liabilities of Albertsons that are not part of the core business being acquired by Supervalu;

 

    the terms and conditions of the merger agreement, including:

 

    the limited number and nature of the conditions to the obligations of Albertsons and New Albertsons to consummate the mergers and the limited risk of non-satisfaction of such conditions;

 

    the limits on Albertsons’ ability to solicit other acquisition proposals; and

 

    that Supervalu would be entitled to receive a $276 million termination fee from Albertsons if the merger agreement is terminated under certain circumstances, as discussed in detail under “The Transaction Agreements—The Merger Agreement—Termination Fees” beginning on page 114;

 

    the terms and conditions of the separation agreement and transition services agreement with the Cerberus group, including:

 

    the liabilities being assumed by the Cerberus group, and

 

    the payments to be received by Supervalu for the provision of transition services;

 

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    the terms and conditions of the standalone drug sale agreement, including the strong commitment of CVS to complete the transactions contemplated by that agreement;

 

    the determination that a fixed exchange ratio is appropriate to reflect the strategic purpose of the mergers and consistent with market practice for mergers of this type and that a fixed exchange ratio avoids fluctuations caused by near-term market volatility; and

 

    the likelihood that the mergers will be completed on a timely basis, including the likelihood that the mergers will receive all necessary antitrust and other regulatory approvals on a timely basis.

Potential Risks Considered by the Supervalu Board. Supervalu’s board of directors also considered the potential risks of the transactions and potential conflicts of interest, including the following:

 

    the challenges of combining the operations of two major retail businesses and effecting certain cultural changes;

 

    the possible disruptions from certain anticipated workforce reductions to be implemented as part of the integration plan;

 

    the possibility that the mergers might not be completed for reasons beyond Supervalu’s control (including the possibility that the mergers might not be completed because the Cerberus group or CVS might be unable to complete the non-core sale or the standalone drug sale);

 

    the risk that the incremental debt associated with the mergers will reduce Supervalu’s financial flexibility;

 

    the risk that anticipated operating profit synergies and cost savings will not be achieved;

 

    the risk that the businesses and assets to be acquired by Supervalu may, relative to Supervalu’s current business, be subject to increased competition from retail and grocery supercenters and other alternative retail formats;

 

    the risk, which Supervalu’s board does not believe to be significant, that, in order to resolve potential antitrust objections to the mergers, Supervalu may be required under the merger agreement to commit to dispose of significant assets;

 

    the risk that Supervalu will have to pay Albertsons a fee of $250 million if the merger agreement is terminated under certain circumstances relating to antitrust clearance, or a fee of $135 million if the merger agreement is terminated under certain other circumstances;

 

    the dilutive effect on the ownership levels of existing Supervalu stockholders as a result of issuing new shares of Supervalu stock;

 

    the risk of diverting management’s attention from other strategic priorities to implement integration efforts; and

 

    the other risks described under “Risk Factors—Risks Relating to the Mergers” beginning on page 20.

The foregoing discussion of the information and factors considered by Supervalu’s board of directors is not meant to be exhaustive. In view of the wide variety of factors considered in connection with its evaluation of the mergers and the complexity of these matters, the Supervalu board did not find it useful, and did not attempt, to quantify, rank or otherwise assign relative weights to these factors. In considering the factors described above, individual members of the Supervalu board may have given different weight to different factors. The Supervalu board conducted an overall analysis of the factors described above, including thorough discussions with, and questioning of, Supervalu’s management and Supervalu’s legal and financial advisors, and considered the factors overall to be favorable to, and to support, its determination. The Supervalu board also considered the experience and expertise of Lazard, its financial advisor, in reviewing quantitative analyses of the financial terms of the transactions. See “—Opinion of Supervalu’s Financial Advisor” beginning on page 77.

 

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Opinions of Albertsons’ Financial Advisors

Albertsons retained three financial advisors in connection with the transactions: Goldman Sachs, Blackstone and Houlihan Lokey. Albertsons retained Goldman Sachs and Blackstone at an early stage for the purpose of, among other things, assisting Albertsons in the development and consideration of its strategic alternatives. The Albertsons board believed that retaining two internationally recognized and experienced investment banking firms for this purpose would provide greater assurance of a thorough process than the retention of a single firm. The terms of the engagements of Goldman Sachs and Blackstone provided, among other things, that if requested by the Albertsons board, Goldman Sachs and Blackstone would provide opinions regarding the fairness, from a financial point of view, of the consideration to be received by Albertsons stockholders in specified types of transactions involving the sale of 50% or more of the stock or assets of Albertsons. Subsequently, Albertsons retained Houlihan Lokey for the limited purposes of providing solvency advice and to provide an opinion regarding the fairness, from a financial point of view, of the consideration to be received by New Albertsons stockholders in the Supervalu merger. Unlike the arrangements with Goldman Sachs and Blackstone, the arrangements with Houlihan Lokey did not provide for any fee that was contingent on the completion of any transaction. Albertsons and its board of directors believed that the participation of Houlihan Lokey in the process would provide an additional source of advice to the board. The descriptions set forth below describe the analyses undertaken by each of Goldman Sachs, Blackstone and Houlihan Lokey and the opinions provided by each.

Opinion of Goldman Sachs

Goldman Sachs rendered its opinion to the Albertsons board of directors that, as of January 22, 2006, and based upon and subject to the factors and assumptions set forth in its opinion, the consideration to be received by the holders of the shares of New Albertsons common stock (formerly the holders of shares of Albertsons common stock) in the Supervalu merger pursuant to the merger agreement was fair, from a financial point of view, to such holders.

The full text of the written opinion of Goldman Sachs, dated January 22, 2006, which sets forth the assumptions made, procedures followed, matters considered and limitations on the review undertaken in connection with the opinion, is attached as Annex C to this joint proxy statement/prospectus. Goldman Sachs provided its advisory services and opinion for the information and assistance of the board of directors of Albertsons in connection with its consideration of the transactions. The Goldman Sachs opinion does not constitute a recommendation as to how any holder of shares of Albertsons common stock should vote with respect to the adoption of the merger agreement or any other matter.

In connection with rendering the opinion described above and performing its related financial analyses, Goldman Sachs reviewed, among other things:

 

    the merger agreement, the separation agreement and the standalone drug sale agreement;

 

    annual reports to stockholders and Annual Reports on Form 10-K of Albertsons and Supervalu for the five fiscal years ended February 3, 2005, in the case of Albertsons, and February 26, 2005, in the case of Supervalu;

 

    certain interim reports to stockholders and Quarterly Reports on Form 10-Q of Albertsons and Supervalu;

 

    certain other communications from Albertsons and Supervalu to their respective stockholders; and

 

    certain internal financial analyses and forecasts for Albertsons and Supervalu prepared by their respective managements, as well as certain pro forma financial forecasts reflecting the combination of Supervalu and Albertsons, after giving effect to the contemplated sale or transfer of certain assets, liabilities and subsidiaries of Albertsons, prepared by the management of Supervalu.

Goldman Sachs also held discussions with members of the senior managements of Albertsons and Supervalu regarding their assessment of the strategic rationale for, and the potential benefits of, the Supervalu

 

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merger and the past and current business operations, financial condition and future prospects of Albertsons and Supervalu. In addition, Goldman Sachs reviewed the price and trading activity of the shares of Albertsons common stock and the shares of Supervalu common stock, compared certain financial and stock market information for Albertsons and Supervalu with similar information for certain other companies the securities of which are publicly traded, reviewed the financial terms of certain recent business combinations in the United States food retail industry specifically and in other industries generally and performed such other studies and analyses, and considered such other factors, as Goldman Sachs considered appropriate.

Goldman Sachs relied upon the accuracy and completeness of all of the financial, accounting, legal, tax and other information discussed with or reviewed by Goldman Sachs and assumed such accuracy and completeness for purposes of rendering its opinion. In that regard, Goldman Sachs assumed with the consent of the Albertsons board of directors that the financial forecasts for Albertsons and Supervalu and the pro forma financial forecasts reflecting the combination of Supervalu and Albertsons were reasonably prepared on a basis reflecting the best available estimates and judgments of Albertsons and Supervalu, as the case may be, as of January 22, 2006. In addition, Goldman Sachs did not make an independent evaluation or appraisal of the assets and liabilities (including any contingent, derivative or off-balance-sheet assets and liabilities) of Albertsons or Supervalu or any of their respective subsidiaries and, except for appraisals by Cushman & Wakefield and Integra Realty Resources of certain real estate assets of Albertsons (which appraisals were not material to Goldman Sachs’ analysis), Goldman Sachs was not furnished with any evaluation or appraisal. Goldman Sachs assumed that the Supervalu merger would be consummated immediately following the consummation of the reorganization merger. Goldman Sachs also assumed that all governmental, regulatory or other consents and approvals necessary for the consummation of the mergers and related transactions would be obtained without any adverse effect on Albertsons, New Albertsons or Supervalu or on the expected benefits of those transactions, in each case, in any way meaningful to Goldman Sachs’ analysis.

Goldman Sachs’ opinion did not address the underlying business decision of Albertsons to engage in the transactions, nor did Goldman Sachs express any opinion as to the prices at which the shares of Albertsons common stock or Supervalu common stock will trade at any time. Goldman Sachs’ opinion was necessarily based on economic, monetary, market and other conditions as in effect on, and the information made available to Goldman Sachs as of, the date of its opinion.

Goldman Sachs and its affiliates, as part of their investment banking business, are continually engaged in performing financial analyses with respect to businesses and their securities in connection with mergers and acquisitions, negotiated underwritings, competitive biddings, secondary distributions of listed and unlisted securities, private placements and other transactions, as well as for estate, corporate and other purposes. Goldman Sachs has acted as financial advisor to Albertsons in connection with, and has participated in certain of the negotiations leading to, the transactions contemplated by the merger agreement. In addition, Goldman Sachs has provided certain investment banking services to Albertsons from time to time, including having acted as a participant in the Albertsons $1,400,000,000 revolving credit facility. Goldman Sachs has provided and is currently providing certain investment banking services to Supervalu, including having acted as a participant in Supervalu’s $750,000,000 revolving credit facility.

Goldman Sachs has provided and is currently providing significant investment banking services to Cerberus and its affiliates and portfolio companies, including having acted as:

 

    financial advisor to Guilford Mills, Inc., an affiliate of Cerberus, in connection with its sale in April 2004;

 

    sole book-runner and lead manager in the initial public offering of 9,500,000 shares of common stock of BlueLinx Corporation, an affiliate of Cerberus, in December 2004;

 

    financial advisor to Blackacre Capital Management, LLC, an affiliate of Cerberus, in connection with its acquisition of LNR Property Corporation in February 2005; and

 

    a participant in certain mortgage securitization programs and bank loans of certain affiliates and portfolio companies of Cerberus.

Goldman Sachs has provided certain investment banking services to CVS, including having acted as financial advisor to CVS in connection with its acquisition of certain assets related to the Eckerd drugstore chain in July 2004 and as co-lead manager in the placement of CVS’s 4.0% Notes due September 2009 (aggregate principal amount $1,200,000,000) in September 2004.

 

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Goldman Sachs also may provide investment banking services to Albertsons and CVS, the Cerberus group and Supervalu (including their respective affiliates and portfolio companies) in the future. In connection with the above-described investment banking services, Goldman Sachs has received, and may receive, customary compensation.

Goldman Sachs is a full service securities firm engaged, either directly or through its affiliates, in securities trading, investment management, financial planning and benefits counseling, risk management, hedging, financing and brokerage activities for both companies and individuals. In the ordinary course of these activities, Goldman Sachs and its affiliates may provide such services to Albertsons, Supervalu, CVS, Cerberus and their respective affiliates, may co-invest in companies with affiliates of Cerberus from time to time, may actively trade the debt and equity securities (or related derivative securities) of Albertsons, Supervalu, CVS and affiliates of Cerberus for their own account and for the accounts of their customers and may at any time hold long and short positions of such securities.

The board of directors of Albertsons selected Goldman Sachs as its financial advisor because it is an internationally recognized investment banking firm that has substantial experience in transactions similar to the transactions contemplated by the merger agreement. Pursuant to a letter agreement dated June 1, 2005, as amended on December 12, 2005, Albertsons engaged Goldman Sachs to act as its financial advisor in connection with the transactions contemplated by the merger agreement. Pursuant to the terms of this engagement letter, Albertsons has agreed to pay Goldman Sachs a transaction fee, a principal portion of which is payable upon consummation of the transactions contemplated by the merger agreement. The transaction fee payable to Goldman Sachs is currently estimated to be approximately $24.1 million in the aggregate. In addition, Albertsons has agreed to reimburse Goldman Sachs for its expenses, including attorneys’ fees and disbursements, and to indemnify Goldman Sachs and related persons against various liabilities, including certain liabilities under the federal securities laws.

Opinion of Blackstone

Blackstone has acted as a financial advisor to Albertsons in connection with the transactions contemplated by the merger agreement. Albertsons selected Blackstone based on Blackstone’s experience, reputation and familiarity with the business of Albertsons. Blackstone is an internationally recognized investment banking firm and is continually engaged in the valuation of businesses and their securities in connection with mergers and acquisitions, leveraged buyouts and valuations for corporate and other purposes.

In connection with Blackstone’s engagement, Albertsons requested that Blackstone evaluate the fairness, from a financial point of view, of the consideration to be received by the holders of New Albertsons common stock (the former holders of Albertsons common stock) in the Supervalu merger. On January 22, 2006, at a meeting of the board of directors of Albertsons, Blackstone delivered an oral opinion, which was subsequently confirmed in a written opinion dated January 22, 2006, to the effect that, as of that date and based on and subject to the assumptions, limitations and qualifications described in its written opinion, the consideration to be received by the holders of New Albertsons common stock (the former holders of Albertsons common stock) in the Supervalu merger was fair, from a financial point of view, to such holders.

The full text of Blackstone’s written opinion, dated January 22, 2006, to the board of directors of Albertsons, which sets forth the assumptions made and limitations and qualifications on the scope of review undertaken by Blackstone, is attached as Annex D to this joint proxy statement/prospectus. Holders of Albertsons common stock are urged to read this opinion in its entirety. Blackstone’s opinion is addressed to the board of directors of Albertsons and relates only to the fairness, from a financial point of view, to the holders of New Albertsons common stock (the former holders of Albertsons common stock) of the consideration to be received in the Supervalu merger. Blackstone’s opinion does not constitute a recommendation to any stockholder of Albertsons as to how such stockholder should vote or act on any matter relating to the adoption of the merger agreement or any other matter. The summary of Blackstone’s opinion set forth in this joint proxy statement/prospectus is qualified in its entirety by reference to the full text of Blackstone’s opinion.

 

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In arriving at its opinion, Blackstone, among other things:

 

    reviewed certain publicly available information concerning the business, financial condition and operations of Supervalu and Albertsons that Blackstone believed to be relevant to its inquiry;

 

    reviewed certain internal information concerning the business, financial condition and operations of Supervalu and Albertsons that Blackstone believed to be relevant to its inquiry;

 

    reviewed certain internal financial analyses, estimates and forecasts relating to Supervalu and Albertsons prepared and furnished to Blackstone by the management of Supervalu and Albertsons;

 

    reviewed the publicly reported historical prices and trading activity for Supervalu common stock and Albertsons common stock;

 

    reviewed the merger agreement, the separation agreement, the standalone drug sale agreement and the agreement governing the sale of certain Cub-branded stores of Supervalu to an affiliate of the Cerberus group;

 

    held discussions with members of senior management of Supervalu and Albertsons concerning the business, operating environment, financial condition, prospects and strategic objectives of Supervalu and Albertsons;

 

    reviewed publicly available financial and stock market data with respect to certain other companies in lines of businesses that Blackstone believed to be generally comparable to those of Supervalu and Albertsons;

 

    compared the financial terms of the Supervalu merger with the publicly available financial terms of certain other transactions that Blackstone believed to be generally relevant;

 

    performed a discounted cash flow analysis utilizing pro forma financial information prepared by Supervalu and Albertsons; and

 

    conducted such other financial studies and analyses, and considered such other information, as Blackstone deemed necessary or appropriate for purposes of rendering its opinion.

In preparing its opinion, Blackstone relied, without assuming responsibility for independent verification, upon the accuracy and completeness of all financial and other information that is available from public sources and all projections and other information provided to Blackstone by Supervalu and Albertsons or otherwise reviewed by or for Blackstone. Blackstone assumed that the financial and other projections and pro forma financial information prepared by Supervalu and Albertsons, and the assumptions underlying those projections and such pro forma information, including the amounts and the timing of all financial and other performance data, were reasonably prepared and represented management’s best estimates as of the date of their preparation. Blackstone expressed no view as to such analyses or forecasts or the assumptions on which they were based. Blackstone further relied upon the assurances of the management of Supervalu and Albertsons that they are not aware of any facts that would make the information and projections provided by them inaccurate, incomplete or misleading. In addition, Blackstone did not make an independent evaluation or appraisal of the assets and liabilities (including any contingent, derivative or off-balance-sheet assets and liabilities) of Albertsons or Supervalu or any of their respective subsidiaries, and, except for appraisals by Cushman & Wakefield and Integra Realty Resources of certain real estate assets of Albertsons (which appraisals were not material to Blackstone’s analysis), Blackstone was not furnished with any evaluation or appraisal.

In addition, Blackstone also relied, without assuming responsibility for independent verification, upon the views of the management of Supervalu and Albertsons relating to the synergistic values and operating cost savings (including the amount, timing and achievability) anticipated to result from the combination of the operations of Supervalu and Albertsons.

Blackstone assumed that the transactions contemplated by the merger agreement and related agreements would be consummated in accordance with their terms and conditions, without waiver, modification or amendment of any material term, condition or agreement and that, in the course of obtaining the necessary regulatory or third-party approvals and consents for those transactions, no delay, limitation, restriction or condition will be imposed that would have a material adverse effect on Supervalu, New Albertsons or Albertsons or the contemplated benefits of the transactions.

 

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Blackstone did not express any opinion as to what the value of shares of Supervalu common stock will be when issued to holders of shares of New Albertsons common stock or the prices at which shares of Albertsons common stock or shares of Supervalu common stock will trade at any time.

Blackstone’s opinion did not address the underlying business decision of Albertsons to effect the transactions nor does Blackstone’s opinion constitute a recommendation to any stockholder of Albertsons as to how such stockholder should vote or act with respect to the mergers or any other matter.

Blackstone’s opinion was necessarily based upon market, economic, financial and other conditions as they existed and could be evaluated as of the date of the opinion. Blackstone assumes no responsibility to update or revise its opinion based on circumstances or events occurring after the date of the opinion.

Blackstone has acted as financial advisor to Albertsons with respect to the transactions and will receive an estimated fee of approximately $24.1 million based on the transaction value of the transactions contemplated by the merger agreement and related agreements from Albertsons for its services, the principal portion of which is contingent upon the consummation of the mergers. In addition, Albertsons has agreed to reimburse Blackstone for out-of-pocket expenses and to indemnify Blackstone for certain liabilities arising out of the performance of such services (including, the rendering of this opinion). In the ordinary course of Blackstone’s and Blackstone’s affiliates’ businesses, Blackstone and its affiliates may actively trade or hold the securities of Supervalu, New Albertsons or Albertsons for its own account or for others and, accordingly, may at any time hold a long or short position in the securities.

Financial Analyses of Goldman Sachs and Blackstone

The following is a summary of the material financial analyses that were jointly prepared and presented by Goldman Sachs and Blackstone to the Albertsons board of directors on January 22, 2006, in connection with providing their opinions to the Albertsons board of directors. The following summary, however, does not purport to be a complete description of the financial analyses performed by Goldman Sachs and Blackstone. The order of analyses described does not represent relative importance or weight given to those analyses by Goldman Sachs or Blackstone. Some of the summaries of the financial analyses include information presented in tabular format. The tables must be read together with the full text of each summary and are alone not a complete description of Goldman Sachs’ and Blackstone’s financial analyses. Except as otherwise noted, the following quantitative information, to the extent that it is based on market data, is based on market data as it existed on or before January 20, 2006, and is not necessarily indicative of current market conditions.

Historical Stock Trading Prices. Goldman Sachs and Blackstone reviewed the historical trading prices and volumes for Albertsons common stock for the two-year period ended January 20, 2006 in order to compare those prices with the per share merger consideration provided for in the Supervalu merger. Goldman Sachs and Blackstone compared the per share merger consideration with:

 

    the closing share price of Albertsons common stock on January 20, 2006, which was the last trading day prior to the public announcement of the transactions;

 

    the closing share price of Albertsons common stock on September 1, 2005, which was the last trading day prior to the public announcement by Albertsons that it would explore strategic alternatives; and

 

    the average market prices of Albertsons common stock for the two-week, four-week, six-month and one-year periods ended September 1, 2005.

The per share merger consideration was assumed to be $26.15, which represents the sum of the cash consideration of $20.35 and the implied stock consideration of $5.80, based on the product of the exchange ratio of 0.182 provided for in the Supervalu merger and the closing share price of Supervalu common stock of $31.85 on January 20, 2006.

 

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The results of this analysis indicated that the implied merger consideration of $26.15 per share provided for in the Supervalu merger represents the following premiums over the closing share price or average closing share price of Albertsons common stock for the periods listed below:

 

Period

   Implied Premium  

As of January 20, 2006

   8.4 %

As of September 1, 2005

   26.1 %

Two-week average ended September 1, 2005

   29.1 %

Four-week average ended September 1, 2005

   28.8 %

Six-month average ended September 1, 2005

   26.9 %

One-year average ended September 1, 2005

   18.0 %

Implied Premium. Goldman Sachs and Blackstone reviewed certain publicly available information related to selected transactions in order to compare the premiums implied by the merger consideration provided for in the Supervalu merger with the premiums implied by the consideration paid by acquirers in the selected transactions. Goldman Sachs and Blackstone selected and analyzed the following public transactions that were valued between $5 billion and $20 billion and announced since 2001:

 

Target

   Acquirer    Target    Acquirer

•     Ralston Purina Co.

   Nestle S.A.    •     Dime Bancorp Inc.    Washington Mutual Inc.

•     American Water Works Inc.

   RWE AG Co.    •     SCI Systems Inc.    Sanmina Corp.

•     PeopleSoft Inc.

   Oracle Corp.    •     Immunex Corp.    Amgen Inc.

•     Charter One Finl Inc.

   Citizens Financial Inc.    •     Household
International Inc.
   HSBC Holding plc

•     Mandalay Resort Group

   MGM Mirage Inc.    •     Ocean Energy Inc.    Devon Energy Inc.

•     Rouse Co.

   General Growth
Properties Inc.
   •     WellPoint Health
Networks Inc.
   Anthem Inc.

•     Toys “R” Us Inc.

   Investor Group    •     National Commerce
Financial Corp.
   SunTrust Banks Inc.

•     SunGard Data Systems Inc.

   Investor Group    •     Sears Roebuck & Co.    KMart Holding Corp.

•     Neiman Marcus Group Inc.

   Investor Group    •     Western Wireless
Corp.
   ALLTEL Corp.

•     Providian Financial Corp.

   Washington Mutual Inc.    •     MCI Inc.    Verizon Communications
Inc.

•     Chiron Corp.

   Novartis AG    •     May Department
Stores Co.
   Federated Department
Stores Inc.

•     Georgia-Pacific Corp.

   Koch Forest Products
Inc.
   •     Unocal Corp.    ChevronTexaco Corp.

•     Scientific Atlanta Inc.

   Cisco Systems Inc.    •     Premcor Inc.    Valero Energy Corp.

•     Golden State Bancorp Inc.

   Citigroup Inc.    •     PacifiCare Health
Systems Inc.
   UnitedHealth Group

•     Tosco Corp.

   Phillips Petroleum Corp.    •     Siebel Systems Inc.    Oracle Corp.

•     Spieker Properties Inc.

   Equity Office Properties
Trust
   •     WellChoice Inc.    WellPoint Inc.

•     CIT Group Inc.

   Tyco International Ltd.    •     Jefferson-Pilot Corp.    Lincoln National Corp.

•     Ultramar Diamond Shamrock Corp.

   Valero Energy Corp.      

 

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Goldman Sachs and Blackstone also selected and analyzed the following leveraged buyout transactions announced since 2003:

 

Target

  

Acquirer

•      Jostens Inc.

  

Credit Suisse First Boston LLC

•      Extended Stay America Inc.

  

The Blackstone Group L.P.

•      Toys “R” Us Inc.

  

Investor Group

•      Wyndham International Inc.

  

The Blackstone Group L.P.

•      Cox Communications Inc.

  

Cox Enterprises Inc.

•      SunGard Data Systems Inc.

  

Investor Group

•      Neiman Marcus Group Inc.

  

Investor Group

•      La Quinta Corp.

  

The Blackstone Group L.P.

•      SERENA Software Inc.

  

Silver Lake Partners L.P.

•      Georgia-Pacific Corp.

  

Koch Forest Products Inc.

•      TDC A/S Public Co.

  

Nordic Telephone Co.

For each of the selected transactions included in the above tables, Goldman Sachs and Blackstone calculated the premiums paid by the acquirer by comparing the per share purchase price in each transaction to the average four-week historical trading prices of the acquired company prior to the date of the public announcement of the transactions. Goldman Sachs and Blackstone then compared the premiums paid in these selected transactions to the premiums implied in the Supervalu merger based on the closing share price of Albertsons common stock on September 1, 2005, the last trading day prior to Albertsons’ public announcement that it would explore strategic alternatives, and the average four-week historical trading price of Albertsons common stock prior to September 1, 2005.

The following table presents, for each of the three categories of selected transactions reviewed by Goldman Sachs and Blackstone, the median of the premiums paid by acquirers in the selected transactions, as compared to the premiums implied by the implied merger consideration of $26.15 per share provided for in the Supervalu merger:

 

Supervalu Merger

   Implied Premium  

Premium to Albertsons Stock Price on September 1, 2005

   26.1 %

Premium to Albertsons Four-Week Average Stock Price

   28.8 %

Selected Transactions

   Implied Premium  

All Cash Transactions—Four-Week Median Premium

   36.1 %

Cash & Stock Transactions—Four-Week Median Premium

   26.5 %

Buyout Transactions—Four-Week Median Premium

   27.4 %

Selected Transactions Analysis. Goldman Sachs and Blackstone analyzed certain publicly available information relating to the following selected business combination transactions which involved companies in the U.S. food retail industry since January 2002 with a deal value greater than $500 million:

 

Target

  

Acquirer

Shaw’s Supermarkets, Inc.

  

•      Albertsons

Roundy’s Inc.

  

•      Willis Stein Partners

The purpose of this analysis was to compare selected transaction multiples implied by the aggregate consideration provided for in the Supervalu merger with the corresponding multiples implied by the aggregate

 

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consideration paid in the selected transactions. The financial measure used for purposes of this comparison was selected based on Goldman Sachs’ and Blackstone’s review of the financial and operational characteristics of the target companies in the selected transactions and Albertsons. For each of the selected transactions, Goldman Sachs and Blackstone reviewed the aggregate consideration paid by the acquirer, which was calculated to include the net debt (including capital leases) assumed by the acquirer, and selected financial information of the target companies. Goldman Sachs and Blackstone calculated the multiple implied by the aggregate consideration paid in each of the selected transactions in relation to the earnings before interest, taxes, depreciation and amortization, or EBITDA, of the target company for the latest 12 months, or LTM, ended prior to the announcement of the relevant transaction and as publicly reported. The resulting multiple from this calculation, which is referred to as the LTM EBITDA multiple, for each of the selected transactions was then compared with the LTM EBITDA multiple for Albertsons implied by the aggregate consideration proposed to be paid in the Supervalu merger. The aggregate consideration in the Supervalu merger was calculated based on the per share merger consideration of $26.15 implied by the closing share price of Supervalu common stock of $31.85 on January 20, 2006, and Albertsons’ projected net debt that would be assumed in the Supervalu merger. The financial information for the selected transactions and target companies were based on publicly available information. The financial information for Albertsons was based on Albertsons’ management’s estimates.

As presented in the following table, this analysis yielded an LTM EBITDA multiple range of 6.1x to 6.8x for the selected transactions, as compared to the LTM EBITDA multiple of 7.0x implied by the Supervalu merger:

 

Transaction

  

Aggregate Consideration/LTM EBITDA

Selected Transactions

   6.1x – 6.8x

Supervalu Merger

   7.0x

Selected Companies Analysis. Goldman Sachs and Blackstone reviewed and compared certain financial information for Albertsons and Supervalu to corresponding financial information for the following publicly traded companies in the U.S. food retail industry:

 

    The Kroger Co.

 

    Safeway Inc.

Although none of the selected companies is directly comparable to Albertsons or Supervalu, the companies reviewed in this analysis were selected because they are publicly traded companies with operations that, for purposes of this analysis, may be considered similar to certain operations of Albertsons and Supervalu.

The purpose of this analysis was to compare selected multiples and ratios for Albertsons and Supervalu, including the multiples and ratios derived for Albertsons based on the implied merger consideration provided for in the Supervalu merger, with the corresponding multiples and ratios for the selected companies implied by their closing stock prices. The multiples and ratios used for purposes of this comparison were selected based on Goldman Sachs’ and Blackstone’s review of the financial and operational characteristics of Albertsons, Supervalu and the selected companies. The multiples and ratios for Albertsons were calculated based on the implied merger consideration of $26.15 per share, Albertsons’ closing share price of $24.11 on January 20, 2006, which was the last trading day prior to the public announcement of the transactions, and Albertsons’ closing share price of $20.73 on September 1, 2005, the last trading day prior to the public announcement by Albertsons that it would explore strategic alternatives. The financial information and implied multiples and ratios of Supervalu and the selected companies were calculated using the closing prices of the common stock of Supervalu and the selected companies on January 20, 2006 and, in the case of the selected companies, based on publicly available filings and median estimates provided by the Institutional Brokerage Estimate System, or IBES (a data service that compiles estimates issued by securities analysts). The financial information and implied multiples and ratios of Albertsons and Supervalu were based on financial information provided by Albertsons’

 

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management and Supervalu’s management, respectively. With respect to Albertsons, Supervalu, and the selected companies, Goldman Sachs and Blackstone calculated, among other things:

 

    the enterprise value, which is the sum of equity value plus net debt (including capital leases), as a multiple of estimated EBITDA for the LTM, calendar year 2005 and calendar year 2006; and

 

    the per share price as a multiple of the estimated earnings per share, or EPS, for calendar years 2005 and 2006.

This analysis yielded the following multiples for Supervalu and the selected companies, as compared to the corresponding multiples for Albertsons implied by the selected closing stock prices of Albertsons and by the implied merger consideration of $26.15 per share provided for in the Supervalu merger:

 

      Enterprise Value/
EBITDA
  Per Share Price/
EPS
     LTM   2005   2006   2005   2006

Company

          

Albertsons

          

Based on the implied merger consideration

   7.0x   6.6x   6.3x   20.4x   17.0x

Based on closing stock price on January 20, 2006

   6.7x   6.3x   6.0x   18.8x   15.7x

Based on closing stock price on September 1, 2005

   6.0x   5.7x   5.4x   16.2x   13.5x
                    

Supervalu

   6.3x   5.9x   5.6x   14.1x   13.3x
                    

Selected Companies

          

Kroger

   6.6x   6.4x   6.0x   15.0x   13.3x

Safeway

   8.1x   7.6x   7.1x   17.6x   15.1x

Selected Companies Mean

   7.3x   7.0x   6.6x   16.3x   14.2x

Illustrative Future Trading Price Analysis. Goldman Sachs and Blackstone preformed this analysis in order to compare the implied merger consideration of $26.15 per share provided for in the Supervalu merger with the present value of potential future trading prices of Albertsons common stock. The potential future trading prices of Albertsons common stock were calculated by applying selected ranges of multiples to estimated EBITDA and EPS of Albertsons. Goldman Sachs and Blackstone applied multiples ranging from 5.5x to 7.0x to Albertsons’ estimated EBITDA for fiscal years 2005 through 2007 and applied multiples ranging from 13.0x to 16.0x to Albertsons’ estimated EPS for fiscal years 2005 through 2007. Estimated financial information for Albertsons was based on median estimates provided by IBES, in the case of Case A, and Albertsons’ management’s estimates, in the case of Case B. Based on the implied future share prices derived from the range of multiples noted above as well as the EBITDA and EPS estimates for Albertsons, Goldman Sachs and Blackstone calculated the present values of the resulting implied per share equity values using an estimated cost of equity discount rate of 10.3%. The ranges of multiples and cost of equity discount rate used in this analysis were selected based on Goldman Sachs’ and Blackstone’s review of the financial and operational characteristics of the selected companies and Albertsons.

This analysis yielded the following implied per share equity reference ranges for Albertsons, as compared to the implied merger consideration of $26.15 per share provided for in the Supervalu merger:

 

      Implied Per Share
Equity Reference Range

Albertsons (Case A)

  

Based on EBITDA

   $ 16.35–$27.87

Based on EPS

   $ 14.61–$19.84

Albertsons (Case B)

  

Based on EBITDA

   $ 18.62–$28.34

Based on EPS

   $ 19.26–$24.56

 

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Discounted Cash Flow Analysis

Albertsons. Goldman Sachs and Blackstone performed discounted cash flow analyses in order to derive implied per share equity reference ranges for Albertsons as a whole, which is referred to as Case I, and for Albertsons after giving effect to the divestiture of the non-core business for net proceeds of $1.7 billion in the first quarter of fiscal year 2006, which is referred to as Case II. Financial information for Albertsons was based on Albertsons’ management’s estimates. In performing the discounted cash flow analyses of Albertsons under both Case I and Case II, Goldman Sachs and Blackstone applied discount rates ranging from 7.5% to 8.5% to the projected free cash flows for fiscal years 2006 through 2010 and to the implied terminal values for Albertsons. The range of discount rates was derived based on the weighted average cost of capital estimated for Albertsons. Goldman Sachs and Blackstone calculated the implied terminal values for Albertsons based on perpetuity growth rates ranging from (1.0%) to 1.0%.

Goldman Sachs and Blackstone also performed discounted cash flow analyses of Albertsons based on the adjusted projected free cash flows for fiscal years 2006 through 2010, which were derived by applying fixed, hypothetical EBITDA margins each year from 2006 through 2010 ranging from 5.5% to 6.5%, in the case of Case I, and 7.0% to 8.0%, in the case of Case II, to the estimated sales for Albertsons of those years utilizing Albertsons’ management’s estimates. The implied terminal values under both Case I and Case II were derived based on a perpetuity growth rate of 0.0%. The adjusted projected free cash flows and implied terminal values were then discounted to calculate their implied present values by applying discount rates ranging from 7.5% to 8.5%. Goldman Sachs and Blackstone then derived the implied per share equity reference ranges for Albertsons under Case I and Case II.

This analysis yielded the following implied per share equity reference ranges for Albertsons, as compared to the implied merger consideration of $26.15 per share provided for in the Supervalu merger:

 

Albertsons (Case I)

   Implied Per Share
Equity Reference Range

Based on Projected Free Cash Flows

   $ 18.16–$28.81

Based on Adjusted Projected Free Cash Flows

   $ 16.12–$28.43

This analysis yielded the following implied per share equity reference ranges for Albertsons, after giving effect to the divestiture of the non-core business, as compared to the implied merger consideration of $26.15 per share provided for in the Supervalu merger:

 

Albertsons (Case II)

   Implied Per Share
Equity Reference Range

Based on Projected Free Cash Flows

   $ 18.74–$28.39

Based on Adjusted Projected Free Cash Flows

   $ 18.58–$28.86

Supervalu. Goldman Sachs and Blackstone also performed a discounted cash flow analysis in order to derive implied per share equity reference ranges for Supervalu after giving effect to the Supervalu merger and the anticipated synergies from the Supervalu merger, utilizing Supervalu management’s estimates. The implied per share equity reference ranges for Supervalu were derived in order to derive a range of implied values of the per share merger consideration provided for in the Supervalu merger, as described below. In performing the discounted cash flow analysis of Supervalu, Goldman Sachs and Blackstone applied discount rates ranging from 7.25% to 8.25% to the projected free cash flows for fiscal years 2006 through 2010 and implied terminal values, in each case, for Supervalu after giving effect to the Supervalu merger. The range of discount rates was derived based on the weighted average cost of capital estimated for Supervalu. Goldman Sachs and Blackstone calculated the implied terminal values for Supervalu by applying perpetuity growth rates ranging from (0.5%) to 1.5%, referred to as the Perpetuity Growth Rate Method, and by applying exit multiples ranging from 5.0x to 7.0x to the estimated fiscal year 2010 EBITDA for Supervalu after giving effect to the Supervalu merger, referred to as the Exit EBITDA Method. Goldman Sachs and Blackstone then derived implied per share equity reference ranges for Supervalu after giving effect to the Supervalu merger and the anticipated synergies.

 

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This analysis yielded the following implied per share equity reference ranges for Supervalu:

 

Supervalu (Post-Supervalu Merger)

   Implied Per Share
Equity Reference Range

Based on Perpetuity Growth Rate Method

   $ 30.58–$64.01

Based on Exit EBITDA Method

   $ 30.94–$56.46

Goldman Sachs and Blackstone then derived a range of implied values of the per share merger consideration provided for in the Supervalu merger. Goldman Sachs and Blackstone then multiplied 0.182 to the resulting implied per share equity reference ranges for Supervalu in order to derive ranges of implied values for the stock consideration provided for in the Supervalu merger. Goldman Sachs and Blackstone then added the per share cash consideration of $20.35 to these ranges of implied values for the stock consideration in order to derive ranges for the implied values of the per share merger consideration provided for in the Supervalu merger.

This analysis yielded the following ranges of implied values for the per share merger consideration provided for in the Supervalu merger, as compared to the implied per share merger consideration based on the closing stock price of Supervalu on January 20, 2006, the last trading day prior to the public announcement of the proposed Supervalu merger:

 

Supervalu Stock

   Implied Value of the Per Share
Merger Consideration

Based on Implied Per Share Equity Reference Range for Supervalu (Post-Supervalu Merger):

  

Perpetuity Growth Rate Method

   $25.92–$32.00

EBITDA Exit Method

   $25.98–$30.63

Based on closing price of Supervalu common stock on January 20, 2006

   $26.15

Merger Consideration Sensitivity Analysis. Goldman Sachs and Blackstone analyzed the potential values of the merger consideration in the Supervalu merger based on a range of hypothetical trading values of Supervalu common stock. Goldman Sachs and Blackstone derived a range of potential values of the merger consideration by adding the cash consideration of $20.35 provided for in the Supervalu merger to a range of potential values of the stock consideration based on the exchange ratio of 0.182 provided for in the Supervalu merger and a range of hypothetical trading values of Supervalu common stock of $27.50 to $37.50. The purpose of this analysis was to review the potential changes in the value of the merger consideration based on the fluctuation of the trading price of Supervalu common stock. The results of this analysis are as follows:

 

Hypothetical Supervalu Stock Price

   $ 27.50    $ 30.00    $ 31.85    $ 35.00    $ 37.50

Implied Value of the Per Share Stock Consideration in the Supervalu Merger

   $ 5.01    $ 5.46    $ 5.80    $ 6.37    $ 6.83
                                  

Implied Per Share Merger Consideration

   $ 25.36    $ 25.81    $ 26.15    $ 26.72    $ 27.18

Pro Forma Merger Analysis. Goldman Sachs and Blackstone performed a pro forma analysis in order to review the potential financial impact of the Supervalu merger on Supervalu using estimates for Albertsons and Supervalu prepared by Supervalu’s management. For each of the fiscal years 2006, 2007, and 2008, Goldman Sachs and Blackstone compared the projected EPS of Supervalu common stock, on a standalone basis, to the projected EPS of the common stock of the combined company. This analysis indicated that the proposed Supervalu merger could be accretive to Supervalu’s stockholders on an EPS basis in all of the fiscal years 2006, 2007, and 2008.

The preparation of a fairness opinion is a complex process and is not necessarily susceptible to partial analysis or summary description. Selecting portions of the analyses or of the summary set forth above, without

 

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considering the analyses as a whole, could create an incomplete view of the processes underlying Goldman Sachs’ and Blackstone’s opinions. In arriving at its fairness determination, each of Goldman Sachs and Blackstone considered the results of all of its analyses and did not attribute any particular weight to any factor or analysis considered by it. Rather, each of Goldman Sachs and Blackstone made its determination as to fairness on the basis of its experience and professional judgment after considering the results of all of its analyses. No company or transaction used in the above analyses as a comparison is directly comparable to Albertsons or Supervalu or the contemplated transactions.

Goldman Sachs and Blackstone prepared these analyses for purposes of providing their respective opinions to the Albertsons board of directors as to the fairness, from a financial point of view, of the consideration to be received by the holders of the shares of New Albertsons common stock (formerly the holders of shares of Albertsons common stock) in the Supervalu merger pursuant to the merger agreement. These analyses do not purport to be appraisals nor do they necessarily reflect the prices at which businesses or securities actually may be sold. Analyses based upon forecasts of future results are not necessarily indicative of actual future results, which may be significantly more or less favorable than suggested by these analyses. Because these analyses are inherently subject to uncertainty, being based upon numerous factors or events beyond the control of the parties or their respective advisors, none of Albertsons, Supervalu, Goldman Sachs, Blackstone or any other person assumes responsibility if future results are materially different from those forecast.

The merger consideration was determined through arm’s-length negotiations between Albertsons and Supervalu and was approved by the Albertsons board of directors. Goldman Sachs and Blackstone provided advice to Albertsons during these negotiations. Goldman Sachs and Blackstone did not, however, recommend any specific amount of consideration to Albertsons or its board of directors or that any specific amount of consideration constituted the only appropriate consideration for the mergers.

As described above, Goldman Sachs’ and Blackstone’s opinions to the Albertsons board of directors were one of many factors taken into consideration by the Albertsons board of directors in making its determination to approve the merger agreement and the mergers. The foregoing summary does not purport to be a complete description of the analyses performed by Goldman Sachs and Blackstone in connection with their respective opinions and is qualified in its entirety by reference to the written opinions of Goldman Sachs and Blackstone attached to this joint proxy statement/prospectus as Annex C and Annex D, respectively.

Opinion of Houlihan Lokey

Under an engagement letter dated December 20, 2005, the board of directors of Albertsons retained Houlihan Lokey to, among other things, render an opinion, which we refer to as the Houlihan opinion, as to whether the consideration to be received by the holders of New Albertsons common stock in the Supervalu merger is fair to such stockholders from a financial point of view.

The board of directors of Albertsons chose to retain Houlihan Lokey based upon Houlihan Lokey’s experience in the valuation of businesses and their securities in connection with mergers and acquisitions and similar transactions, especially with respect to food and drug retail enterprises. The board of directors of Albertsons also considered that Houlihan Lokey has a national presence. Houlihan Lokey is a nationally recognized investment banking firm that is continually engaged in providing financial advisory services and rendering fairness opinions in connection with mergers and acquisitions, leveraged buyouts, and business and securities valuations for a variety of regulatory and planning purposes, recapitalizations, financial restructurings and private placements of debt and equity securities. At the time of its hiring, Houlihan Lokey had no material prior relationship with Albertsons or its affiliates.

The full text of the Houlihan opinion, dated January 22, 2006, which describes, among other things, the limitations on such opinion as well as the assumptions and qualifications made, general procedures followed, and matters considered by Houlihan Lokey in its review, is attached as Annex E to this joint proxy statement/

 

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prospectus. The summary of the Houlihan opinion contained in this joint proxy statement/prospectus is qualified in its entirety by reference to the full text of the Houlihan opinion. You are urged to read the Houlihan opinion in its entirety.

As compensation to Houlihan Lokey for its services, Albertsons agreed to pay Houlihan Lokey a non-refundable retainer deposit of $1.0 million and an additional $1.0 million for rendering the Houlihan opinion (or for delivering an indication that it is unable, after performing the requisite analysis, to render such opinion), no portion of which is contingent upon the consummation of the transactions. Albertsons has also agreed to indemnify and hold harmless Houlihan Lokey and any employee, agent, officer, director, attorney, stockholder or any person who controls Houlihan Lokey, against any and all losses in connection with, arising out of, based upon, or in any way related to Houlihan Lokey’s engagement on behalf of the board of directors of Albertsons.

Houlihan Lokey relied upon and assumed, without independent verification, the accuracy and completeness of all data, material and other information (including the financial forecasts and projections) furnished, or otherwise made available, to it, discussed with or reviewed by it, or publicly available, and did not assume any responsibility with respect to such data, material and other information. In addition, Houlihan Lokey relied upon and assumed, without independent verification, that the financial forecasts and projections made available to it were reasonably prepared on bases reflecting the best currently available estimates and judgments of the future financial results and condition of Albertsons and that Albertsons will perform substantially in accordance with those projections. Houlihan Lokey expressed no opinion with respect to such forecasts and projections or the assumptions on which they were based.

Houlihan Lokey relied upon and assumed, without independent verification, that there had been no material change in the assets, liabilities, financial condition, results of operations, business or prospects of Albertsons between the date of the most recent financial statements provided to it and the date on which it rendered the Houlihan opinion, and that there was no information or facts that would make the information reviewed by it incomplete or misleading. Houlihan Lokey also assumed that none of Albertsons, CVS, Supervalu, or New Albertsons is party to any material pending transaction, including, without limitation, any external financing, recapitalization, acquisition or merger, divestiture or spin-off (other than the transactions).

Houlihan Lokey relied upon and assumed, without independent verification, that (a) the representations and warranties of all parties to the transaction agreements and all other related documents and instruments that are referred to therein are true and correct in all material respects, (b) each party to all such agreements will perform in all material respects all of the covenants and agreements required to be performed by such party, (c) all conditions to the consummation of the transactions will be satisfied without waiver thereof and (d) the transactions will be consummated in a timely manner in accordance with the terms described in the agreements provided to it, without any material amendments or modifications thereto or any adjustment to the aggregate consideration (through offset, reduction, indemnity claims, post-closing purchase price adjustments or otherwise). Many of the terms in the transaction agreements related to the Supervalu merger do not have a quantifiable value from a financial point of view. Houlihan Lokey considered and made inquiries regarding such terms and had no information to believe the net effect of these terms would be material to the valuation of the consideration contemplated in connection with the Supervalu merger from a financial point of view, or to an assessment of the fairness of the consideration to be paid to the holders of New Albertsons common stock. The non-quantifiable terms of the transactions and related agreements include, among other things, the mechanics and processes of effecting the transactions and changes to the corporate structures of the parties following the transactions, representations and warranties of the parties, covenants regarding access to information, further actions, reasonable best efforts, directors’ and officers’ insurance and indemnity.

Houlihan Lokey also relied upon and assumed, without independent verification, that all governmental, regulatory, and other consents and approvals necessary for the consummation of the transactions will be obtained and that no delay, limitations, restrictions or conditions will be imposed that would have a material adverse effect on Albertsons, New Albertsons, or Supervalu or the expected benefits of the transactions. In addition, Houlihan

 

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Lokey relied upon and assumed, without independent verification, that the final forms of the draft agreements identified below will not differ in any material respect from such draft agreements.

Furthermore, Houlihan Lokey was not requested to make, and did not make, any physical inspection or independent appraisal or evaluation of any of the assets, properties or liabilities (contingent or otherwise) of Albertsons or Supervalu, and, other than as set forth below, Houlihan Lokey was not provided with any such appraisal or evaluation. Houlihan Lokey expressed no opinion regarding the liquidation value of any entity. Furthermore, Houlihan Lokey undertook no independent analysis of any potential or actual litigation, regulatory action, possible unasserted claims or other contingent liabilities to which Albertsons or Supervalu is a party or may be subject, or of any governmental investigation of any possible unasserted claims or other contingent liabilities to which Albertsons or Supervalu is a party or may be subject. With the consent of Albertsons’ board of directors, the Houlihan opinion made no assumption concerning, and therefore did not consider, the potential effects of any such litigation, claims or investigations or possible assertions of claims, outcomes or damages arising out of any such matters.

Houlihan Lokey was not requested to, and did not, (a) initiate any discussions with, or solicit any indications of interest from, third parties with respect to the transactions or any alternatives to the transactions, (b) negotiate the terms of the transactions, or (c) advise Albertsons’ board of directors with respect to alternatives to the transactions. The Houlihan opinion is necessarily based on financial, economic, market and other conditions as in effect on, and the information made available to Houlihan Lokey as of, the date on which it issued such opinion.

Houlihan Lokey did not undertake, and is under no obligation, to update, revise, reaffirm or withdraw the Houlihan opinion, or otherwise comment on or consider events occurring after the date it issued such opinion. Houlihan Lokey did not consider, nor did it express any opinion with respect to, the prices at which the common stock of Albertsons and the common stock of Supervalu have traded or may trade subsequent to the disclosure or consummation of the transactions. Houlihan Lokey assumed that the common stock of Supervalu to be issued in the Supervalu merger to the stockholders of New Albertsons will be freely tradable and listed on the NYSE.

The Houlihan opinion was furnished for the use and benefit of Albertsons’ board of directors in connection with its consideration of the transactions and was not intended to, and does not, confer any rights or remedies upon any other person, and is not intended to be used, and may not be used, for any other purpose, without Houlihan Lokey’s express, prior written consent.

Houlihan Lokey, or its affiliates, has provided and may currently be providing certain other financial advisory and investment banking services to affiliates of Cerberus, has received fees for rendering such services, and may continue to provide such services or similar services and receive fees therefor in the future.

Houlihan Lokey was not requested to opine as to, and the Houlihan opinion does not address: (i) the underlying business decision of Albertsons, its security holders or any other party to proceed with or effect the transactions (or any part thereof), (ii) the fairness of any portion or aspect of the transactions (or any part thereof) not expressly addressed in such opinion, (iii) the fairness of any portion or aspect of the transactions to the holders of any class of securities, creditors or other constituencies of Albertsons, or any other party other than those set forth in such opinion, (iv) the relative merits of the transactions (or any part thereof) as compared to any alternative business strategies that might be available to Albertsons, (v) the tax or legal consequences of the transactions (or any part thereof) to either Albertsons, its security holders, or any other party, or (vi) whether any security holder should vote in favor of any proposal relating to the transactions (or any part thereof). Furthermore, the Houlihan opinion was not intended to, nor does it, offer any opinion, counsel or interpretation concerning matters that require legal, regulatory, accounting, insurance, tax or other similar professional advice. Houlihan Lokey assumed that such opinions, counsel or interpretations were or will be obtained from the appropriate professional sources. Furthermore, Houlihan Lokey relied, with the consent of Albertsons’ board of directors, on the advice of the outside counsel to Albertsons, and on the assumptions of the management of Albertsons, as to all legal, regulatory, accounting, insurance and tax matters with respect to Albertsons and the transactions.

 

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The substance of the Houlihan opinion was only one of many factors taken into consideration by Albertsons’ board of directors in making its determination to approve the transactions. The Houlihan opinion does not constitute a recommendation to any holder of Albertsons common stock as to how such stockholder should vote with respect to the merger agreement.

The Houlihan opinion speaks only as of the date on which it was rendered and is based on the conditions as they existed and the information with which it was supplied through the date of its issuance. The Houlihan opinion is offered without regard to any market, economic, financial, legal, or other circumstances or event of any kind or nature which may exist or occur after such date.

In undertaking its analysis of the fairness, from a financial point of view, of the consideration to be received by the holders of New Albertsons common stock in connection with the Supervalu merger, among other things, Houlihan Lokey did the following:

 

    reviewed Albertsons’ most recent Form 10-K, including audited financial statements for the fiscal years ended February 3, 2005, January 29, 2004, and January 30, 2003, and Albertsons’ most recent Form 10-Q, including unaudited financial statements for the thirteen weeks ended November 3, 2005 and October 28, 2004;

 

    reviewed a comprehensive financial model that contained forecasts and projections prepared by Albertsons’ management with respect to Albertsons and its various operations for the years ended 2005 through 2010, as well as quarterly data for fiscal year 2006, including projections for its core business, standalone drug business, and non-core business;

 

    held discussions with the members of the management of Albertsons regarding the operations, financial condition, future prospects and projected operations and performance of Albertsons, as well as the transactions;

 

    held discussions with the representatives of one of Albertsons’ financial advisors, Goldman Sachs;

 

    reviewed Supervalu’s most recent Form 10-K, including audited financial statements for the fiscal years ended February 26, 2005, February 28, 2004, and February 22, 2003, and reviewed Supervalu’s most recent Form 10-Q, including unaudited financial statements for the twenty-eight-week periods ended September 10, 2005 and September 11, 2004;

 

    reviewed a comprehensive financial model that contained forecasts and projections prepared by Supervalu’s management and/or its advisors with respect to Supervalu and Albertsons on a pro forma basis for the years ended 2005 through 2010, with such model being referred to as the “Rating Agency Model”;

 

    held discussions with the management of Supervalu regarding the operations, financial condition, future prospects and projected operations and performance of Supervalu and Albertsons on a pro forma basis as well as the transactions;

 

    held discussions with representatives of Supervalu’s financial advisor, Lazard;

 

    reviewed presentations prepared by Albertsons’ financial advisors regarding Albertsons and the transactions;

 

    reviewed certain documents available as of January 21, 2006 in the online data room maintained by the Merrill Corporation;

 

    reviewed numerous presentations prepared by Albertsons’ management including presentations regarding: non-core asset divestiture (including an estimated proceeds summary), Corporate Strategy and Business Development, Marketing and Food Operations, Supply Chain, Information Technology, Legal, Store Development and New Formats, Human Resources, Southern California, Shaw’s, Intermountain West, Jewel-Osco, standalone drug business, Acme, corporate strategy and competitive analysis;

 

    reviewed various presentations prepared by Supervalu’s advisor, Lazard, regarding the transactions;

 

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    reviewed the following agreements and documents regarding the transactions:

 

    Proposal and associated schedules submitted by Supervalu and Cerberus to Albertsons;

 

    the January 22, 2006 draft merger agreement;

 

    the January 22, 2006 draft separation agreement;

 

    the January 20, 2006 draft standalone drug sale agreement; and

 

    the January 22, 2006 draft of the Asset Purchase Agreement between Hawk Acquisition LLC and Supervalu, relating to the sale by Supervalu of certain Chicago-area Cub stores;

 

    reviewed real estate appraisal information and certain letters of intent regarding certain stores and distribution centers that are known as Albertsons’ non-core business;

 

    reviewed the historical market prices and trading volume for Albertsons’ and Supervalu’s publicly traded securities;

 

    reviewed certain publicly available financial data for certain companies that it deemed relevant and publicly available transaction prices and premiums paid in other change of control transactions that it deemed relevant for companies in related industries to Albertsons and Supervalu; and

 

    conducted such other financial studies, analyses and inquiries as it deemed appropriate.

Valuation and Other Analyses Underlying the Houlihan Opinion

Houlihan Lokey used several methodologies to assess the fairness of the consideration per share to be received by the holders of New Albertsons common stock in connection with the Supervalu merger. The following is a summary of the material financial analyses performed by Houlihan Lokey in connection with rendering the Houlihan opinion. The summary of the Houlihan opinion contained in this joint proxy statement/prospectus is qualified in its entirety by reference to the full text of the Houlihan opinion. You are urged to read the Houlihan opinion in its entirety.

Houlihan Lokey performed the analyses that follow based upon its view that each is appropriate and reflective of generally accepted valuation methodologies for the industries in which Albertsons and Supervalu operate, trading volume relative to total shares outstanding, the accessibility of comparable publicly traded companies and the availability of projections from Albertsons’ and Supervalu’s management. Further, Houlihan Lokey did not rely exclusively on any one valuation approach, but rather it considered all of the following valuation approaches in arriving at its conclusions. For purposes of these analyses, the per share merger consideration was assumed to be $26.15, which represents the sum of the cash consideration of $20.35 and the implied stock consideration of $5.80, based on the product of the exchange ratio of 0.182 provided for in the Supervalu merger and the closing share price of Supervalu common stock of $31.85 on January 20, 2006.

Albertsons Public Market Trading Analysis. In order to value Albertsons’ publicly held common stock and determine whether the price indicated by the public market accurately reflected the fair market value of Albertsons at the time of the analysis, Houlihan Lokey analyzed the historical market prices and trading volume for Albertsons’ publicly held common stock and reviewed news articles and press releases relating to Albertsons. Houlihan Lokey noted that Albertsons common stock traded on the NYSE at a weighted average price in the range of $19.26 per share to $25.93 per share for the 52-week period prior to and through January 20, 2006. By comparison, the assumed per share merger consideration to be received by the holders of New Albertsons common stock in connection with the Supervalu merger is $26.15. Houlihan Lokey also observed that Supervalu’s common stock closed at a price of $24.11 on January 20, 2006. In addition, Houlihan Lokey noted that Albertsons’ stock benefits from institutional and retail ownership, strong analyst following, and trading characteristics that are similar to trading in the stock of its peer companies. Houlihan Lokey found no evidence suggesting that the price indicated by the public market failed to reflect the fair market value of Albertsons. However, Houlihan Lokey noted that the price of Albertsons common stock may have been affected by the news

 

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of the strategic alternatives process, increasing 24% post-announcement and maintaining a trading range above the pre-announcement range through the last trading date before the issuance of the Houlihan opinion. Because the market lacked complete information with respect to the process surrounding the transactions, Houlihan Lokey noted that the pre-announcement public price of Albertsons’ stock may not have reflected full information with respect to the Supervalu merger.

Albertsons Discounted Cash Flow Approach. This approach, which is considered an income-based valuation measure, values Albertsons by estimating the present value of its projected future cash flows. In other words, this analysis estimates the value of Albertsons based on projections of how much cash flow Albertsons is expected to produce in the future. The premise of this analysis is that investors will receive only the future cash flows of a company and, because future cash flows are worth less than the same cash flow today, the value of a company can be estimated by discounting future cash flow to the present.

Houlihan Lokey performed its discounted cash flow analyses using projections of after-tax free cash flows of Albertsons without giving effect to debt-related costs, assuming it continued to operate as a stand-alone entity, from fiscal year 2006 through 2010. These cash flow analyses indicated that Albertsons would generate free cash flow ranging from $998 million in 2006 to $678 million in 2010. Houlihan Lokey calculated present values of projected free cash flows totaling: (i) the present value of the period from fiscal year 2006 through 2010 using a discount rate of 8.0% and (ii) the present value of a terminal value which was based upon the free cash flow in the last year of the projection period. Houlihan Lokey estimated a terminal value based on multiples of Albertsons’ projected fiscal year earnings before interest, tax, depreciation and amortization, or EBITDA, for 2010 of 6.0x. The terminal value was discounted to present value using a discount rate of 8.0%.

The valuation of Albertsons resulting from this analysis ranged from a low of $13.80 billion to a high of $14.63 billion, or $23.27 to $25.45 per share. By comparison, the assumed per share merger consideration to be received by the holders of New Albertsons common stock in connection with the Supervalu merger is equal to $26.15. Houlihan Lokey noted that this valuation approach is dependent upon the accuracy of management’s projections and is highly sensitive to management’s underlying assumptions with respect to cash flows, as well as the selected discount rates and terminal multiples. Houlihan Lokey also noted that this approach considers the expected financial performance of Albertsons’s operations and how such financial performance is expected to change over the projection period.

Albertsons Selected Transactions Approach. This is a market-based valuation approach that involves comparing Albertsons to certain other companies engaged in a similar line of business that have been sold, yielding pricing information regarding the value of such companies. The transactions were selected solely by Houlihan Lokey based on its experience valuing companies in mergers and acquisitions transactions and Houlihan Lokey deemed the target companies in the selected transactions to be comparable to Albertsons or to be engaged in lines of business comparable to the lines of business in which Albertsons is engaged on the basis of its review of the operational and financial characteristics of Albertsons and such target companies. By considering the price of such companies’ transaction-determined values, and the resulting valuation metrics as measured by the multiple of revenue and operating cash flow (or EBITDA) that the transaction value represents, this valuation approach is meant to reflect the sentiment of acquirers and provide another data point for understanding whether the consideration per share to be received by the holders of New Albertsons common stock in connection with the Supervalu merger is fair to them.

Accordingly, in connection with this analysis, Houlihan Lokey reviewed certain financial information regarding transactions that closed during 2004 and 2005 of companies engaged in the food and drug retail line of business. The transactions in the food retail business that Houlihan Lokey considered included Certified Grocer’s acquisition of Fresh Brands, Inc., Metro Inc.’s acquisition of A&P Canada, Lone Star Fund’s acquisition of Bruno’s Supermarkets, Hannaford Brothers’ acquisition of Victory Supermarkets, and Albertsons’ acquisition of Shaw’s Supermarkets. This analysis resulted in indicated median and mean multiples of 6.5x and 7.20x EBITDA, respectively, and indicated mean and median multiples of 0.43x and 0.39x revenue, respectively. The transactions in the drug retail business that Houlihan Lokey considered included Nihon Chouzai Co., Ltd.’s

 

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acquisition of Chibainon Co., Ltd., Seibu Nishi-Chouzai Center Co., Ltd., Asia Poteco Co. Ltd., and Kiyose Chouzai Center Co., Ltd.; BioScrip, Inc.’s acquisition of Northland Medical Pharmacy; Medical System Network Co., Ltd.’s acquisition of the Sun Meditech Co., Ltd. and Nihon Sun Medics Co., Ltd. units of parent Nichii Gakkan Co.; Asterand, Inc.’s acquisition of Pharmagene Plc; Alliance UniChem Plc’s acquisition of the Pharma DEP S.A. unit of Cider Sante S.A.; Greencross Coa Co., Ltd.’s acquisition of the Iino Drug Co. Ltd. unit of AEON Co., Ltd.; Alliance UniChem Plc’s acquisition of Bairds Chemists Ltd., Falco Biosystems Ltd.’s acquisition of Prot Co. Ltd., Vertical Health Solutions, Inc.’s acquisition of Advanced Pharmacy Solutions; Maywufa Corp.’s acquisition of Pro Healthcare International Co. Ltd.; CVS Corp. and Jean Coutu Group PJC Inc.’s acquisition of the Eckerd Pharmacy unit of J.C. Penny Co.; and Oak Hill Capital Management, Inc.’s acquisition of Duane Reade, Inc. This analysis resulted in indicated median and mean multiples of 6.3x EBITDA, and indicated mean and median multiples of 0.45x and 0.60x revenue, respectively. Houlihan Lokey then derived reference multiple ranges of 6.0x to 6.25x EBITDA and 0.4x to 0.45x revenues from these other industry transactions.

Houlihan Lokey then applied this data from the comparable industry transactions to the corresponding data for Albertsons to arrive at a value range for Albertsons of $12.4 billion to $13.4 billion, or $20.97 to $24.00 per share. By comparison, the assumed per share merger consideration to be received by the holders of New Albertsons common stock in connection with the Supervalu merger is equal to $26.15. Houlihan Lokey noted that the reliability of this valuation approach is dependent upon the similarity of the selected transactions to the contemplated transactions.

Albertsons Market Multiple Approach. This valuation approach involves comparing Albertsons to certain other publicly traded companies that are considered comparable to Albertsons. The analysis compares data including earnings, cash flow, and other metrics and operating statistics as well as the price of the comparable publicly traded companies. By considering the price of such companies’ securities, and their resulting implied valuations, this valuation approach is meant to reflect the sentiment of the investing public and provide another data point for understanding whether the consideration per share to be received by the holders of New Albertsons common stock in connection with the Supervalu merger is fair to them.

Accordingly, in connection with this analysis, Houlihan Lokey reviewed certain financial information of publicly traded companies engaged in the food and drug retail line of business. These publicly traded companies were selected solely by Houlihan Lokey on the basis of its experience valuing companies in mergers and acquisitions transactions and Houlihan Lokey deemed the selected companies to be comparable to Albertsons or to be engaged in lines of business comparable to the lines of business in which Albertsons is engaged on the basis of its review of the operational and financial characteristics of Albertsons and such selected companies. The comparable companies selected by Houlihan Lokey for analysis included, among others, the Kroger Co., Safeway Inc., the Delhaize Group, Great Atlantic & Pacific Tea Company, Inc., Ingles Markets, Inc., Pathmark Stores, Inc., Ruddick Corporation, Weis Markets, Inc., and Supervalu, which Houlihan Lokey determined to have businesses comparable to the core business and the non-core business. As part of this analysis, Houlihan Lokey also considered CVS Corp., Walgreen Co., Rite Aid Corp., Longs Drug Stores Corp., Jean Coutu Group and Shoppers Drug Mart Corp., which Houlihan Lokey determined to have businesses comparable to the standalone drug business. Houlihan Lokey noted that no single company used in this analysis is directly comparable to Albertsons.

Houlihan Lokey calculated and considered certain financial ratios of the comparable companies engaged in the food and drug retail line of business based on publicly available information, including, among others, the multiples of enterprise value to revenue and EBITDA as estimated for the twelve month period ending December 31, 2005, and as projected for the twelve month period ending December 31, 2006.

Houlihan Lokey noted that the median and mean multiples for the group of comparable public companies were 6.4x and 6.8x 2005 EBITDA and 6.6x (for both median and mean) 2006 projected EBITDA. Similarly, Houlihan Lokey noted that the comparable public companies had median and mean multiples of 0.36x and 0.35x 2005 revenue, and 0.27x and 0.33x projected 2006 revenue. On the basis of these data, Houlihan Lokey then derived reference multiple ranges of 6.25x to 6.50x 2005 EBITDA, and 6.0x to 6.25x projected 2006 EBITDA,

 

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as well as 0.45x to 0.50x both 2005 and projected 2006 revenue. Houlihan Lokey then applied these multiples to the corresponding data for Albertsons to arrive at a value range for Albertsons, based upon the market multiple analysis, of $13.58 billion and $14.62 billion, or $23.46 to $26.68 per share. By comparison, the assumed per share merger consideration to be received by the holders of New Albertsons common stock in connection with the Supervalu merger is equal to $26.15.

Houlihan Lokey noted that the accuracy of this valuation approach is dependent on the extent to which the selected comparable companies are in fact comparable to the company being analyzed. In the case of Albertsons, Houlihan Lokey observed that several of the comparable public companies used in the analysis were of a considerably different size than Albertsons, in different stages of development than Albertsons, or operate in different economic environments than Albertsons does.

Albertsons Sum of Parts Approach. This valuation approach seeks to determine the value of a company’s marketable assets, tangible and intangible, by determining what certain of its divisions would be worth if they were broken up and spun-off or acquired by another entity. Houlihan Lokey separately examined the value of Albertsons’ core business, the standalone drug business, and the non-core business as though each were an independent business. For this analysis, Houlihan Lokey used the discounted cash flow, selected transactions, and market multiple approaches described above, applied those methodologies and the supporting data described above to each of the core business, the standalone drug business, and the non-core business, and then added the values of the core business, the standalone drug business, and the non-core business together to determine the net value to stockholders that would remain after satisfying all liabilities.

The value of Albertsons based on the sum of parts discounted cash flow analysis ranged from a low of $10.17 billion to a high of $11.20 billion, or $24.00 to $26.42 per share. By comparison, the assumed per share merger consideration to be received by the holders of New Albertsons common stock in connection with the Supervalu merger is equal to $26.15. Houlihan Lokey noted that this approach is dependent upon the accuracy of management’s projections and is highly sensitive to management’s underlying assumptions with respect to cash flows, as well as the selected discount rates and terminal multiples. Houlihan Lokey also noted that this approach considers the expected financial performance of certain divisions of Albertsons and how such financial performance is expected to change over the projection period.

The value of Albertsons based on the sum of parts selected transactions analysis ranged from a low of $9.39 billion to a high of $11.06 billion, or $22.16 to $26.10 per share. By comparison, the assumed per share merger consideration to be received by the holders of New Albertsons common stock in connection with the Supervalu merger is equal to $26.15. Houlihan Lokey noted that the reliability of this approach is dependent upon the similarity of the selected transactions to the contemplated transactions.

The value of Albertsons based on the sum of parts market multiple analysis ranged from a low of $8.40 billion to a high of $10.16 billion, or $19.82 to $23.97 per share. By comparison, the assumed per share merger consideration to be received by the holders of New Albertsons common stock in connection with the Supervalu merger is equal to $26.15. Houlihan Lokey noted that the accuracy of this approach methodology is dependent on the extent to which the selected comparable companies are in fact comparable to the company being analyzed. In the case of Albertsons, Houlihan Lokey observed that several of the comparable public companies used in its analysis were of a considerably different size than Albertsons, in different stages of development than Albertsons, or operate in different economic environments than Albertsons does.

Supervalu Common Stock as Part of the Merger Consideration. As part of its review of the per share merger consideration, Houlihan Lokey analyzed Supervalu’s common stock, which is a constituent part of such consideration. As previously described, the per share merger consideration was assumed to be $26.15, which represents the sum of the cash consideration of $20.35 and the implied stock consideration of $5.80, based on the product of the exchange ratio of 0.182 provided for in the Supervalu merger and the closing share price of Supervalu common stock of $31.85 on January 20, 2006. Houlihan Lokey considered the market and trading characteristics of Supervalu’s common stock and performed a pro forma analysis of post-transactions Supervalu.

 

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Supervalu Public Market Trading Analysis. In order to value Supervalu’s publicly held common stock and determine whether the price indicated by the public market accurately reflected the fair market value of Supervalu at the time of analysis, Houlihan Lokey analyzed the historical market prices and trading volume for Supervalu’s publicly held common stock and reviewed news articles and press releases relating to Supervalu. Houlihan Lokey noted that Supervalu’s common stock traded on the NYSE at a weighted average price in the range of $29.55 per share to $35.88 per share for the 52-week period prior to and through January 20, 2006. It also observed that Supervalu’s common stock closed at a price of $31.85 on January 20, 2006. In addition, Houlihan Lokey noted that Supervalu’s stock benefits from institutional and retail ownership, strong analyst following, and trading characteristics that are similar to trading in the stock of its peer companies. It found no evidence suggesting that the price indicated by the public market failed to reflect the fair market value of Supervalu. However, Houlihan Lokey noted that the price of Supervalu’s common stock may have been affected by the news of the strategic alternatives process, generally trading slightly lower on rumors of the transactions. Because the market lacked complete information with respect to the process surrounding the transactions, Houlihan Lokey noted that the pre-announcement public price of Supervalu’s stock may not have reflected full information.

Supervalu Pro Forma Analysis. This valuation approach seeks to analyze the financial effects of combining two businesses, and served to support Houlihan Lokey’s calculation of the value of the merger consideration based on the closing price of Supervalu’s common stock on January 20, 2006 of $31.85. Houlihan Lokey performed a pro forma analysis of the financial impact of the transactions using various financial forecasts and other data provided by Supervalu and Albertsons relating to Supervalu’s base business, the core business and synergies expected to result from the Supervalu merger. On the basis of such data, Houlihan Lokey then determined a value for the post-transactions Supervalu using the market multiple and discounted cash flow approaches. It then subtracted the redemption value of Supervalu’s pro forma, post-transaction debt and added to the results the value of its cash and other similar assets. The results were then divided by pro forma diluted shares outstanding to yield per share valuations.

 

  Supervalu Discounted Cash Flow Analysis. This approach, which is considered an income-based valuation measure, values post-transactions Supervalu by estimating the present value of its projected future cash flows. In other words, this analysis tries to estimate the value of Supervalu based on projections of how much cash flow it is expected to produce in the future. The premise of this analysis is that investors will receive only the future cash flows of a company and, because future cash flows are worth less than the same cash flow today, the value of a company can be estimated by discounting future cash flow to the present. Houlihan Lokey performed its discounted cash flow analysis using projections of unlevered after-tax free cash flows of Supervalu without giving effect to debt-related costs, assuming that the Supervalu merger was consummated and that Supervalu continued to operate in its post-merger form, from fiscal year 2006 through 2010. These cash flow analyses indicated that Supervalu would generate free cash flow of $1.04 billion, $968 million, $1.04 billion, $1.06 billion, and $1.04 billion in the fiscal years 2006 through 2010. Houlihan Lokey calculated present values of projected free cash flows totaling: (i) the present value of the period from fiscal year 2006 through 2010 using a discount rate of 8.0% and (ii) the present value of a terminal value which was based upon the free cash flow in the last year of the projection period. Houlihan Lokey estimated a terminal value based on multiples of Supervalu’s projected fiscal year EBITDA for 2010 of 6.0x. The terminal value was discounted to present value using a discount rate of 8%.

The value of Supervalu based on the discounted cash flow analysis produced a range of per share valuations within which Supervalu’s January 20, 2006 closing stock price of $31.85 falls. Houlihan Lokey also noted that this valuation approach considers the expected financial performance of Supervalu and how such financial performance is expected to change over the projection period.

 

 

Supervalu Market Multiple Analysis. Houlihan Lokey calculated and considered certain financial ratios of companies that it considered to be comparable to Supervalu on a pro forma basis based on its experience valuing companies in mergers and acquisition transactions and its review of the operational and financial characteristics of Supervalu and such companies. Such companies are engaged in the food and drug line of

 

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business and their financial ratios were derived from publicly available information. These ratios included, among others, multiples of enterprise value to pro forma EBITDA as estimated for the twelve month period ending December 31, 2005, and as projected for the twelve month period ending December 31, 2006. The comparable public companies were the same companies as those utilized by Houlihan Lokey in its Albertsons Market Multiple Analysis, as set forth above. This analysis resulted in indicated multiples ranging from 6.00x to 6.50x.

Based upon the foregoing, the market multiple analysis yielded valuations of Supervalu ranging from a low of $17.4 billion to a high of $18.3 billion, or $33.00 to $37.03 per share. By comparison, the closing price of Supervalu’s common stock on January 20, 2006 was $31.85. Houlihan Lokey noted that the accuracy of this valuation approach is dependent on the extent to which the selected comparable companies are in fact comparable to the company being analyzed. In the case of Supervalu, Houlihan Lokey observed that several of the comparable public companies used in the analysis were of a considerably different size than Supervalu is expected to be, in different stages of development than Supervalu is expected to be, or operate in different economic environments than Supervalu is expected to operate in.

Implied Multiple and Premium Approaches. These are market-based valuation metrics which compare the valuation metrics of Albertsons implied by the assumed Supervalu merger consideration to the valuation metrics of selected comparable companies and transactions in order to evaluate the Supervalu merger consideration. For the implied multiple analysis, Houlihan Lokey compared the implied multiple of Albertsons value (as determined based on the assumed Supervalu merger consideration) to Albertsons’ trailing EBITDA to similar multiples exhibited in certain change of control transactions of selected publicly traded companies in the food and drug retail industry that Houlihan Lokey deemed to be comparable to Albertsons and relevant for the purposes of this analysis. These multiples were developed based upon data drawn from public filings of those companies involved in such change of control transactions. The transactions considered by Houlihan Lokey as part of this analysis were the same transactions it considered as part of its Albertsons Selected Transactions Approach, as set forth above.

The per share Supervalu merger consideration was assumed to be $26.15. On the basis of the closing share price of Albertsons common stock on January 20, 2006, Houlihan Lokey concluded that the Supervalu merger transaction value represents a multiple of 6.7x the estimated 2005 EBITDA of Albertsons. Houlihan Lokey compared the 6.7x implied EBITDA multiple to the median multiple exhibited by comparable public companies (6.4x), the average multiple of a peer group consisting of Safeway and Kroger (6.9x), and the median and mean multiple exhibited in transactions occurring in 2004 and 2005 in the industry (6.5x and 7.2x, respectively).

In change of control transactions it is common for an acquirer to offer to pay target shareholders a per share amount exceeding the market price per share of the target shares, or a premium. As part of its implied premium analysis, Houlihan Lokey reviewed certain publicly available information related to selected transactions announced in 2004 and 2005 to calculate the change of control premiums implied by the consideration paid by acquirers in the selected transactions. The transactions considered by Houlihan Lokey as part of this analysis were the same transactions it considered as part of its Albertsons Selected Transactions Approach, as set forth above. As summarized in the following table, Houlihan Lokey then compared the premiums paid in these selected transactions to the premiums implied in the Supervalu merger based on the closing share price of Albertsons common stock on September 1, 2005, the last trading day prior to Albertsons’ public announcement that it would explore strategic alternatives, and the average 52-week historical trading price of Albertsons common stock prior to and through September 1, 2005. For comparison purposes, the table also shows the median share price 1, 5, and 30 days prior to announcement of the comparable public company merger and acquisition transactions:

 

Supervalu Merger

   Implied Premium  

Premium to Albertsons Stock Price on September 1, 2005

   26.6 %

Premium to Albertsons Average Stock Price in 52 Weeks Preceding Announcement of the Transactions

   18.7 %

 

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Selected Transactions

   Implied
Premium
 

1-Day Median

   27.9 %

5-Day Median

   21.0 %

30-Day Median

   22.3 %

High

   40.3 %

Low

   8.7 %

Conclusion

On January 22, 2006, Houlihan Lokey delivered an oral opinion to the board of directors of Albertsons, which was accompanied by the Houlihan opinion in written form, stating that, as of the date of the opinion, the consideration to be received by the holders of New Albertsons common stock was fair, from a financial point of view, to such stockholders. This opinion was based upon and subject to the assumptions, qualifications, and limitations made and matters considered by Houlihan Lokey in its review.

In performing its analyses, Houlihan Lokey considered that the merger and acquisition transaction environment varies over time because of, among other things, interest rate and equity market fluctuations and industry results and growth expectations. No company used in the analysis described above is directly comparable to Albertsons or operates a business substantially similar in character to its business. Accordingly, Houlihan Lokey reviewed the foregoing comparable public companies exclusively to obtain a range of relevant multiples rather than a single, definitive valuation of Albertsons. In addition, no single transaction used in the above analyses as a comparison is identical to the transactions.

In arriving at its opinion, Houlihan Lokey reviewed key economic and market indicators, including, but not limited to, growth in the U.S. Gross Domestic Product, inflation rates, interest rates, consumer spending levels, manufacturing productivity levels, unemployment rates and general stock market performance. The Houlihan opinion is based on the business, economic, market and other conditions as such conditions existed as of date on which it was issued and on the financial projections provided to Houlihan Lokey.

The summary set forth above describes the material points of more detailed analyses performed by Houlihan Lokey in arriving at the Houlihan opinion. The preparation of a fairness opinion is a complex analytical process involving various determinations as to the most appropriate and relevant methods of financial analysis and application of those methods to the particular circumstances and is therefore not readily susceptible to summary description. In arriving at its opinion, Houlihan Lokey made qualitative judgments as to the significance and relevance of each analysis and factor. Accordingly, Houlihan Lokey believes that its analyses and the summary set forth herein must be considered as a whole and that selecting portions of its analyses, without considering all analyses and factors, or portions of this summary, could create an incomplete and/or inaccurate view of the processes underlying the analyses set forth in the Houlihan opinion. In its analyses, Houlihan Lokey made numerous assumptions with respect to Albertsons, the transaction, industry performance, general business, economic, market and financial conditions and other matters, many of which are beyond the control of the respective entities. The estimates contained in such analyses are not necessarily indicative of actual values or predictive of future results or values, which may be more or less favorable than suggested by such analyses. Finally, analyses relating to the value of Albertsons’ businesses or securities are not appraisals. Accordingly, such analyses and estimates are inherently subject to substantial uncertainty.

Opinion of Supervalu’s Financial Advisor

Under an engagement letter dated September 29, 2005, Supervalu retained Lazard to act as its investment banker. As part of this engagement, Supervalu requested that Lazard evaluate the fairness, from a financial point of view, to Supervalu of the consideration to be paid in the Supervalu merger. Lazard has delivered to the board of directors of Supervalu a written opinion, dated January 22, 2006, that, as of that date, the consideration to be paid by Supervalu in the Supervalu merger, after giving effect to the other transactions contemplated by the merger agreement and the other transaction agreements, is fair, from a financial point of view, to Supervalu.

 

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The full text of the Lazard opinion is attached as Annex F to this joint proxy statement/prospectus and is incorporated into this joint proxy statement/prospectus by reference. The description of the Lazard opinion set forth in this joint proxy statement/prospectus is qualified in its entirety by reference to the full text of the Lazard opinion set forth in Annex F. Supervalu stockholders are urged to read the Lazard opinion in its entirety for a description of the procedures followed, assumptions made, matters considered and qualifications and limitations on the review undertaken by Lazard in connection with the opinion. Lazard’s written opinion is directed to Supervalu’s board of directors and only addresses, as of the date of the opinion, the fairness, from a financial point of view, to Supervalu of the consideration to be paid in the Supervalu merger, after giving effect to the other transactions contemplated by the merger agreement and the other transaction agreements. Lazard’s written opinion does not address the merits of the underlying decision by Supervalu to engage in the Supervalu merger and was not intended to and does not constitute a recommendation to any stockholder as to how the stockholder should vote with respect to the Supervalu merger or any matter relating to the Supervalu merger. Lazard’s opinion is necessarily based on economic, monetary, market and other conditions as in effect on, and the information made available to Lazard as of, the date of the Lazard opinion. Lazard assumes no responsibility for updating or revising its opinion based on circumstances or events occurring after the date of the opinion. The following is only a summary of the Lazard opinion and you are urged to read the entire opinion set forth in Annex F.

In the course of performing its review and analyses in rendering its opinion, Lazard:

 

    reviewed the financial terms and conditions contained in the latest drafts provided to Lazard by Supervalu or its counsel as of January 22, 2006 of the merger agreement and the transaction agreements;

 

    analyzed certain historical publicly available business and financial information relating to Albertsons and Supervalu;

 

    reviewed various financial forecasts and other data provided to Lazard by Albertsons (we refer to such financial forecasts as the “Management Case forecasts” in this joint proxy statement/prospectus) relating to Albertsons’ core business, which New Albertsons will conduct after the reorganization merger and separation;

 

    reviewed various financial forecasts and other data provided to Lazard by Supervalu (we refer to such financial forecasts as the “Supervalu Base Case forecasts”) relating to Albertsons’ core business;

 

    reviewed various financial forecasts and other data provided to Lazard by Supervalu relating to Supervalu’s businesses;

 

    held discussions with members of the senior management of each of Supervalu and Albertsons with respect to the business and prospects of Supervalu and Albertsons’ core business, respectively, the strategic objectives of each, and possible benefits that might be realized following the Supervalu merger;

 

    reviewed public information with respect to certain other companies in lines of business Lazard believed to be generally comparable to Albertsons’ core business and the businesses of Supervalu;

 

    reviewed the financial terms of certain business combinations involving companies in lines of business Lazard believed to be generally comparable to Albertsons’ core business;

 

    reviewed the historical trading prices and trading volumes of Albertsons’ and Supervalu’s outstanding common stock; and

 

    conducted such other financial studies, analyses and investigations as Lazard deemed appropriate.

Lazard relied upon the accuracy and completeness of the foregoing information and did not assume any responsibility for any independent verification of such information or any independent valuation or appraisal of any of the assets or liabilities of Supervalu, Albertsons or New Albertsons or concerning the solvency of or issues relating to the solvency of Supervalu, Albertsons or New Albertsons. With respect to the financial forecasts,

 

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Lazard assumed that they had been reasonably prepared on bases reflecting the best currently available estimates and judgments of the management of Albertsons and Supervalu as to the future financial performance of Albertsons’ core business and Supervalu, respectively. Lazard assumed no responsibility for, and expressed no view as to, such forecasts or the assumptions on which they were based.

In rendering its opinion, Lazard assumed that the Supervalu merger would be consummated on the terms described in the merger agreement, without any waiver of any material terms or conditions by Supervalu. In addition, Lazard assumed that the other transactions contemplated by the merger agreement and the transaction agreements would be consummated on the terms described in those agreements, without any waiver or modification of any material terms or conditions by the parties to those agreements. Lazard also assumed that obtaining the necessary regulatory approvals for the Supervalu merger would not have a material adverse effect on Supervalu and the core business, taken as a whole. Lazard did not express any opinion as to any tax or other consequences that might result from the Supervalu merger, nor did its opinion address any legal, tax, regulatory or accounting matters, as to which Lazard understood that Supervalu obtained such advice as it deemed necessary from qualified professionals.

Lazard did not express any opinion as to the price at which Supervalu’s common stock or Albertsons’ common stock may trade subsequent to the announcement of the Supervalu merger or as to the price at which Supervalu’s common stock may trade subsequent to the consummation of the Supervalu merger. Other than the fairness to Supervalu, from a financial point of view, of the consideration to be paid by Supervalu in the Supervalu merger, after giving effect to the other transactions contemplated by the merger agreement and the transaction agreements, Lazard did not express any opinion as to any of those other transactions.

The following is a summary of the material financial and comparative analyses which Lazard deemed to be appropriate for this type of transaction and that were performed by Lazard in connection with rendering its opinion. The summary of Lazard’s analyses described below is not a complete description of the analyses underlying Lazard’s opinion. The preparation of a fairness opinion involves various determinations as to the most appropriate and relevant methods of financial analysis and the application of these methods to the particular circumstances and, therefore, such an opinion is not readily susceptible to partial analysis or summary description. Accordingly, notwithstanding the separate analyses summarized above, Lazard believes that its analyses must be considered as a whole, and that selecting portions of the analyses or factors considered by it, without considering all such factors or analyses, or attempting to ascribe relative weights to some or all such analyses and factors, could create an incomplete view of the evaluation process underlying the Lazard opinion. In arriving at its opinion, Lazard considered the results of all the analyses and did not attribute any particular weight to any factor or analysis considered by it. Rather, Lazard made its determination as to fairness on the basis of its experience and professional judgment after considering the results of all of the analyses.

No company, transaction or business used in Lazard’s analyses as a comparison is identical to Supervalu, Albertsons, New Albertsons or Albertsons’ core business or the Supervalu merger, and an evaluation of the results of those analyses is not entirely mathematical. Rather, the analyses involve complex considerations and judgments concerning financial and operating characteristics of Supervalu, Albertsons, New Albertsons and Albertsons’ core business and other factors that could affect the acquisition, public trading or other values of the companies, business segments or transactions analyzed. The estimates contained in Lazard’s analyses and the valuation ranges resulting from any particular analysis are not necessarily indicative of actual values or predictive of future results or values, which may be significantly more or less favorable than those suggested by these analyses. In addition, analyses relating to the value of the businesses or securities do not purport to be appraisals or to reflect the prices at which the businesses or securities may actually be sold or the prices at which their securities may trade. Accordingly, the estimates used in, and the results derived from, Lazard’s analyses are inherently subject to substantial uncertainty.

The financial analyses summarized below include information presented in tabular format. In order to fully understand Lazard’s financial analyses, the tables must be read together with the text of each summary. The

 

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tables alone do not constitute a complete description of the financial analyses. Considering the data in the tables below without considering the full narrative description of the financial analyses, including the methodologies and assumptions underlying the analyses, could create a misleading or incomplete view of Lazard’s financial analyses.

Summary of Analyses Performed

In the course of performing its review in rendering its opinion, Lazard performed various financial and valuation analyses with respect to New Albertsons and Albertsons’ core business. For purposes of the analyses described below, Lazard calculated the implied value of the consideration payable in the Supervalu merger as $12.5 billion. This implied value is based on consideration of:

 

    0.182 shares of Supervalu common stock for every share of New Albertsons common stock, with a value of $32.65 per share of Supervalu common stock based on the 20-day average per share trading price of Supervalu common stock ending on January 20, 2006 (the last trading day prior to announcement of the merger agreement);

 

    cash payments of approximately $3.7 billion to New Albertsons stockholders;

 

    approximately $6.1 billion of Albertsons debt and capital leases that will remain outstanding as debt of Supervalu or its subsidiaries (including New Albertsons); and

 

    the assumption of approximately $0.1 billion of additional liabilities, including, without limitation, various one-time costs associated with the Supervalu merger.

Each of the analyses and resulting indicative value ranges calculated by Lazard are detailed in the following pages. Set forth in the table immediately below is a summary of the indicative value ranges calculated by Lazard as a result of the respective analyses performed.

Implied Enterprise Value of Albertsons’ Core Business

(after giving effect to the reorganization merger and the other transactions contemplated

by the transaction agreements)

 

     Low    High

Publicly Traded Comparables Analysis

   $ 11.7 billion    $ 13.0 billion

Precedent Transactions Analysis

   $ 12.6 billion    $ 16.0 billion

Fully Distributed Comparables Analysis

   $ 14.0 billion    $ 15.6 billion

Discounted Cash Flow Analyses

     

• Management Case

   $ 13.5 billion    $ 15.4 billion

• Supervalu Base Case

   $ 12.2 billion    $ 14.0 billion

Leveraged Buy-out Analyses

     

• Management Case

   $ 11.6 billion    $ 13.1 billion

• Supervalu Base Case

   $ 10.2 billion    $ 11.8 billion

Implied Value of Consideration Payable by Supervalu

     $12.5 billion

Publicly Traded Comparables Analysis

Lazard performed a publicly traded comparables analysis, which was designed to provide a range of estimated values for Albertsons’ core business by comparing certain financial information for Albertsons’ core business with comparable publicly available financial information for selected public companies in the retail grocery industry that Lazard deemed to be reasonably comparable to Albertsons’ core business. The comparable companies considered by Lazard were:

 

    The Kroger Co.; and

 

    Safeway Inc.

 

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Lazard’s publicly traded comparables analysis included a comparison of the enterprise value of the companies listed above as a multiple of such companies’ expected 2006 EBITDA. The chart below is a summary of these enterprise value/EBITDA multiples:

 

     Enterprise Value as a
Multiple of Expected
2006 EBITDA:

High

   7.3x

Low

   6.6x

Mean

   7.0x

Median

   7.0x

Based on its experience valuing companies in merger and acquisitions transactions, and using these enterprise value/EDITDA multiples as a guide, Lazard derived an enterprise value/EBITDA multiple reference range and applied such range to the expected 2006 EBITDA of Albertsons’ core business. This analysis indicated an implied enterprise value range for Albertsons’ core business of $11.7 billion to $13.0 billion, as compared to the $12.5 billion value of this business implied by the consideration payable in the Supervalu merger.

Precedent Transactions Analysis

Lazard performed a precedent transactions analysis, which was designed to provide a range of estimated values for Albertsons’ core business by comparing certain financial information for Albertsons’ core business with the comparable implied financial statistics for the target companies involved in the following recent mergers and acquisition transactions in the retail grocery industry that Lazard deemed most comparable to the Supervalu merger based on size, scope of business and market demographic:

 

Date Announced

  

Acquirer

   Target

July 2005

  

Metro Inc.

   A&P Canada

March 2004

  

Albertsons

   Shaw’s Supermarket Inc.

Lazard’s precedent transactions analysis included a comparison of the enterprise value of each of the target companies listed above as a multiple of such companies’ last twelve months, or LTM, sales and LTM EBITDA. The chart below is a summary of the enterprise value/LTM sales and enterprise value/LTM EBITDA multiples for these periods:

 

     Enterprise Value as a
Multiple of
Last Twelve Months:
     Sales    EBITDA

High

   0.57x    9.0x

Low

   0.41x    7.1x

Mean

   0.49x    8.1x

Median

   0.49x    8.1x

Based on its experience with merger and acquisitions transactions and using these enterprise value/LTM sales and enterprise value/LTM EBITDA multiples as a guide, Lazard derived an enterprise value/EBITDA multiple reference range and applied such range to the LTM EBITDA of Albertsons’ core business. This analysis indicated an implied enterprise value range for Albertsons’ core business of $12.6 billion to $16.0 billion, as compared to the $12.5 billion value of the core business implied by the consideration payable in the Supervalu merger.

 

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Lazard also reviewed publicly available financial information regarding the target companies involved in the following eighteen transactions in the retail grocery industry. However, Lazard noted that these transactions were less comparable to the Supervalu merger than the two transactions highlighted above.

 

Date Announced

  

Acquirer

  

Target

March 2005

   Yucaipa Companies, LLC    Pathmark Stores, Inc. (acquisition of 40% equity interest)

September 2004

   Albertsons    Bristol Farms

December 2003

   William Morrison Supermarkets plc    Safeway PLC

June 2003

   C&S Wholesale Grocers, Inc.    Fleming Cos. Inc. (acquisition of wholesale grocery business)

May 2003

   Roundy’s Supermarkets Inc.    Fleming Cos. Inc (acquisition of 31 Rainbow Foods stores)

October 2002

   Tesco PLC    T&S Stores PLC

November 2001

   Wakefern Food Corporation    Big V Supermarket, Inc.

September 2001

   Koninklijke Ahold N.V.    Bruno’s Supermarkets, Inc.

March 2001

   Tops Markets, Inc.    C&S Wholesale Grocers, Inc. (acquisition of 20 Grand Union stores)

December 2000

   Koninklijke Ahold N.V.    C&S Wholesale Grocers, Inc. (acquisition of 56 Grand Union stores)

December 2000

   Safeway Inc.    Genuardi’s Family Markets, Inc.

October 2000

   C&S Wholesale Grocers, Inc.    Grand Union Co. (acquisition of 170 stores)

August 1999

   Food Lion Inc.    Hannaford Bros. Co.

July 1999

   Safeway Inc.    Randalls Food Markets, Inc.

June 1999

   Supervalu    Richfood, Inc.

October 1998

   The Kroger Co.    Fred Meyer, Inc.

August 1998

   Albertsons    American Stores Co.

May 1998

   Koninklijke Ahold N.V.    Giant Food, Inc.

Lazard’s precedent transactions analysis included a comparison of the enterprise value of each of the target companies listed above as a multiple of such companies’ LTM sales and LTM EBITDA. The chart below is a summary of the enterprise value/LTM sales and enterprise value/LTM EBITDA multiples for these periods:

 

     Enterprise Value as a
Multiple of
Last Twelve Months:
     Sales    EBITDA

High

   1.09x    13.7x

Low

   0.16x    7.1x

Mean

   0.56x    9.7x

Median

   0.54x    9.2x

Fully Distributed Publicly Traded Comparables Analysis

Because Lazard deemed so few precedent transactions in the retail grocery industry to be reasonably comparable to Albertsons’ core business, Lazard also performed a fully distributed analysis of The Kroger Co.

 

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and Safeway Inc., the two companies referenced above in the Publicly Traded Comparables Analysis that Lazard deemed to be the most comparable to Albertsons’ core business. For purposes of this analysis, Lazard applied a 30% control premium to the equity values of such companies and compared the resulting enterprise values to such companies’ expected 2006 EBITDA. Based on its experience valuing companies in mergers and acquisitions transactions and using these enterprise value/EBITDA multiples as a guide, Lazard derived an enterprise value/EBITDA reference range and applied such range to the expected 2006 EBITDA of Albertsons’ core business. This analysis indicated an implied enterprise value range for Albertsons’ core business of $14.0 billion to $15.6 billion, as compared to the $12.5 billion value of this business implied by the consideration payable in the Supervalu merger.

Discounted Cash Flow Analyses

Lazard performed discounted cash flow analyses, which were designed to provide a range of estimated values for New Albertsons (after giving effect to the reorganization merger and the other transactions contemplated by the transaction agreements), based on the present value of the expected future cash flows of Albertsons’ core business. Using the Management Case forecasts and the Supervalu Base Case forecasts, Lazard performed two separate discounted cash flow analyses. More specifically, Lazard performed discounted cash flow analyses valuing Albertsons’ core business based on the present value of projected unlevered free cash flows from February 28, 2006 through February 28, 2011 and the present value of the terminal value of Albertsons’ core business in 2011. Lazard’s discounted cash flow analyses did not take into account potential synergies that could result from the Supervalu merger. To calculate the terminal values, Lazard assumed a range of terminal year exit multiples of estimated EBITDA, ranging from 6.50x to 7.50x, which implied perpetuity growth rates for Albertsons’ core business of approximately 1.0% to 2.0%. Lazard then discounted projected cash flows and terminal values at rates of 7.5% to 8.0%. This range of discount rates was based on a weighted average cost of capital analysis of the comparable publicly traded companies mentioned above.

Management Case. Using this analysis and applying the assumptions described above to the Management Case forecasts, Lazard derived a range of implied enterprise values for New Albertsons (after giving effect to the reorganization merger and the other transactions contemplated by the transaction agreements) of $13.5 billion to $15.4 billion, as compared to the $12.5 billion value of Albertsons’ core business implied by the consideration payable in the Supervalu merger.

Supervalu Base Case. Using this analysis and applying the assumptions described above to the Supervalu Base Case forecasts, Lazard derived a range of implied enterprise values for New Albertsons (after giving effect to the reorganization merger and the other transactions contemplated by the transaction agreements) of $12.2 billion to $14.0 billion, as compared to the $12.5 billion value of Albertsons’ core business implied by the consideration payable in the Supervalu merger.

Pro Forma Merger Analysis

Lazard performed a pro forma analysis of the potential financial impact of the Supervalu merger on the earnings per share, or EPS, of Supervalu common stock using the Supervalu Base Case forecasts and various financial forecasts provided to Lazard by Supervalu relating to Supervalu’s businesses. For each of the fiscal years 2006, 2007 and 2008, Lazard compared the projected EPS of Supervalu common stock, on a standalone basis, to the projected EPS of the common stock of the combined company. This analysis indicated that the Supervalu merger would likely be accretive to Supervalu’s stockholders on an EPS basis in all of the fiscal years 2006, 2007 and 2008. The financial forecasts and assumptions underlying this analysis are subject to substantial uncertainty and, therefore, actual results may be substantially different.

Leveraged Buyout Analyses

Lazard performed leveraged buyout analyses, which were designed to provide a range of estimated values for New Albertsons (after giving effect to the reorganization merger and the other transactions contemplated by

 

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the transaction agreements) based on the maximum purchase price that a potential buyer would pay for Albertsons’ core business in order to receive a 20.0% return on equity. Lazard performed the leveraged buy out analyses with respect to Albertsons’ core business using both the Management Case and Supervalu Base Case forecasts. For these analyses, Lazard assumed a required rate of return on equity of 20.0%, terminal year exit multiples of estimated EBITDA in 2011 ranging from 6.5x to 7.5x, a total debt to 2006 estimated EBITDA ratio of 5.9x and that approximately 14% of the total available financing for the transaction would consist of equity financing.

Management Case. Using this analysis and applying the assumptions described above to the Management Case forecasts, Lazard derived a range of implied enterprise values for New Albertsons (after giving effect to the reorganization merger and the other transactions contemplated by the transaction agreements) of $11.6 billion to $13.1 billion, as compared to the $12.5 billion value of Albertsons’ core business implied by the consideration payable in the Supervalu merger.

Supervalu Base Case. Using this analysis and applying the assumptions described above to the Base Case forecasts, Lazard derived a range of implied enterprise values for New Albertsons (after giving effect to the reorganization merger and the other transactions contemplated by the transaction agreements) of $10.2 billion to $11.8 billion, as compared to the $12.5 billion value of Albertsons’ core business implied by the consideration payable in the Supervalu merger.

Conclusion

Lazard performed a variety of financial and comparative analyses solely for the purpose of providing its opinion to the board of directors of Supervalu that the consideration to be paid in the Supervalu merger, after giving effect to the other transactions contemplated by the merger agreement and the transaction agreements, was fair to Supervalu from a financial point of view. Lazard’s opinion and financial analyses were not the only factors considered by the board of directors of Supervalu in their evaluation of the Supervalu merger and should not be viewed as determinative of the views of Supervalu’s board of directors or its management. Lazard has consented to the inclusion of and references to its opinion in this joint proxy statement/prospectus.

Under the terms of Lazard’s engagement, (i) Supervalu paid $250,000 to Lazard upon Supervalu’s submission to the board of directors of Albertsons of its formal written proposal regarding the Supervalu merger and an additional $250,000 upon instructing Lazard to do additional work following submission of that proposal; (ii) Supervalu paid $2,000,000 to Lazard when Lazard provided the board of directors of Supervalu with its opinion as described elsewhere in this joint proxy statement/prospectus with respect to the fairness, from a financial point of view, of the consideration to be paid in the Supervalu merger; and (iii) $15,500,000 is payable by Supervalu to Lazard at the effective time of the Supervalu merger. Supervalu has agreed to reimburse Lazard for travel and other out-of-pocket expenses incurred in performing its services, including the fees and expenses of its legal counsel. In addition, Supervalu agreed to indemnify Lazard against certain liabilities, including liabilities under the federal securities laws relating to or arising out of Lazard’s engagement. In the ordinary course of their respective businesses, Lazard, Lazard Capital Markets LLC (an entity owned in large part by the managing directors of Lazard) and their respective affiliates may actively trade shares of Supervalu or Albertsons common stock for its own account and for the accounts of their customers and, accordingly, may at any time hold a long or short position in such securities. Lazard has in the past provided investment banking services to Supervalu for which it has received customary fees.

Lazard is an internationally recognized investment banking firm and is continually engaged in the valuation of businesses and their securities in connection with mergers and acquisitions, negotiated underwritings, secondary distributions of listed and unlisted securities, private placements, leveraged buyouts and valuations for estate, corporate and other purposes. Lazard was selected to act as investment banker to Supervalu because of its expertise and its reputations in investment banking and mergers and acquisitions.

 

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Interests of Albertsons’ Directors and Executive Officers in the Mergers

Albertsons’ executive officers and members of the Albertsons board of directors, in their capacities as such, may have financial interests in the transactions that are in addition to or different from their interests as stockholders of Albertsons generally. Albertsons’ board of directors was aware of these interests and considered them, among other matters, in approving the merger agreement and the transactions.

Supervalu’s Board of Directors After the Mergers

Under the merger agreement, Supervalu has agreed to increase the number of members of its board of directors to fourteen, thus creating three vacancies on its board of directors. Further, Supervalu has agreed to refer the names of three or more independent directors of Albertsons to its Director Affairs Committee for nomination to fill the vacancies and serve on the Supervalu board of directors, one in each of the three classes of the Supervalu board of directors.

Mr. Johnston’s Employment Agreement

Lawrence R. Johnston, the chairman, president, and chief executive officer of Albertsons, is party to an employment agreement with Albertsons. An amendment to the agreement, which is referred to as the employment agreement amendment, was approved by the Management Development/Compensation Committee of the Albertsons board on March 24, 2006. Mr. Johnston has not yet executed the employment agreement amendment, but is expected to execute the employment agreement amendment prior to the Supervalu merger.

Pursuant to the terms of his employment agreement, if Mr. Johnston (1) terminates his employment for “good reason” (as defined in his employment agreement) after the Supervalu merger, (2) terminates his employment for any reason during the seventh full calendar month following the completion of the Supervalu merger, or (3) is terminated other than by reason of death or for “cause” (as defined in his employment agreement) at any time following the completion of the Supervalu merger, Mr. Johnston is entitled to the following benefits:

 

    within 30 days of the date of his termination, a cash payment equal to three times the sum of his then-current base salary plus the greater of the most recent annual bonus paid or the most recent target bonus payable;

 

    a cash payment equal to the pro rata portion of the annual bonus payable to Mr. Johnston for the fiscal year in which the termination occurs payable at the time bonuses are paid under the annual bonus plan to senior executives of Albertsons;

 

    continued participation in Albertsons’ welfare benefit plans, fringe benefit plans and employee perquisites for the three-year period following Mr. Johnston’s termination of employment. The employment agreement amendment provides that, if necessary to avoid a likely negative tax consequence to Mr. Johnston, these benefits may be satisfied by the payment to Mr. Johnston of a lump sum in lieu of continuation of benefits or, in the case of health plan coverage, the provision of medical benefits continuation through insurance coverage obtained on Mr. Johnston’s behalf, instead of Albertsons self-insured medical plans;

 

    Mr. Johnston’s outstanding unvested options to purchase Albertsons common stock will vest and all outstanding options held by him will remain exercisable until the earlier of five years from the date of his termination or the date of expiration of the full stated term of the option;

 

    Mr. Johnston’s restricted stock unit awards that are unvested will vest and become nonforfeitable;

 

    Mr. Johnston’s benefits under the Albertsons nonqualified benefit plans will become fully vested; and

 

    gross-up payments in the event that Mr. Johnston is subject to excise taxes under Section 4999 of the Code as a result of any amounts paid or distributed to him pursuant to the employment agreement and all other plans and programs of Albertsons.

 

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In addition, if Mr. Johnston’s employment is terminated for any reason, he is entitled to the following benefits:

 

    within 30 days of the date of termination, any earned, but unpaid, base salary; any earned, but unpaid bonus for any fiscal year that ended prior to the fiscal year in which termination occurs; and the cash equivalent of any accrued, but unused, vacation;

 

    any accrued employee benefits, subject to the terms of the applicable employee benefit plans; and

 

    the right to require the company to purchase his primary residence in Boise, Idaho for his initial investment plus the cost of any improvements (with the company bearing any closing costs) if he is unable, notwithstanding his reasonable efforts, to sell the residence on his own. Mr. Johnston’s “reasonable efforts” must include the listing of the residence for at least six months with a qualified real estate broker.

The employment agreement amendment provides that if any payment to be made under the employment agreement would occur at a time that does not qualify the payment as a short-term deferral under Section 409A of the Code, Mr. Johnston would receive payment upon the earlier of six months following his “separation from service” (as defined in the Code) or his death, and be entitled to interest earnings, in a specified amount, on these payments.

The severance benefits described above are subject to Mr. Johnston’s execution of a release of claims. In addition, Mr. Johnston has agreed not to compete with, nor solicit customers, employees or suppliers of, Albertsons or its subsidiaries or affiliates during the one-year period following termination of his employment.

Under the terms of Mr. Johnston’s employment agreement, Mr. Johnston is also entitled to a life annuity payable at age 62 (or earlier upon any termination of Mr. Johnston’s employment) equal to 50% of the average of the sum of his base salary and actual bonus from the highest three consecutive years during the ten years prior to his termination of employment (but not less than his initial base salary and initial target bonus, each of which is $1,250,000) offset by the amount of qualified and nonqualified pension benefits payable from the Albertsons plans and the plans of Mr. Johnston’s former employers, and subject to certain reductions if Mr. Johnston’s employment is voluntarily terminated by him without good reason, by Albertsons for cause, or by reason of death. Mr. Johnston may elect early commencement of the annuity but the annuity is generally reduced by 4% for each year of early commencement if he begins receiving payments prior to age 62. However, if termination of employment follows a change of control, which the Supervalu merger will constitute, the 4% reduction will not apply. The employment agreement amendment gives Mr. Johnston the right to elect to receive a lump sum payment of the then-actuarial value of this life annuity upon the later of the effective time or January 1, 2007. With respect to and in satisfaction of the life annuity described in the preceding paragraph, Mr. Johnston will be provided with the right to elect to receive a lump sum payment of the then-actuarial value of this life annuity upon the later of the effective time or January 1, 2007. Assuming that the Supervalu merger occurs on June 1, 2006, and Mr. Johnston’s employment is terminated on that date, this lump sum payment is estimated to equal $20,357,583. If Mr. Johnston elects a lump sum payment but is still employed on the date he receives this benefit, he will be entitled to an additional payment at termination of employment equal to the excess of (1) the present value of the life annuity at the time of his termination of employment assuming that he had not received the prior payments over (2) the amount of the payments made pursuant to his election, increased by an interest factor at an annual rate of 2.75% from the date of the initial payments to the date of his termination of employment.

Change of Control Severance Agreements

Albertsons has entered into change of control severance agreements with each of its executive officers other than Mr. Johnston. Amendments to these change of control severance agreements, which are referred to as the CIC agreement amendments, were approved by the Management Development/Compensation Committee of the Albertsons board on March 24, 2006. The executive officers of Albertsons have not yet executed the CIC agreement amendments, but they are expected to do so prior to the Supervalu merger.

 

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Under the terms of these agreements, within five business days of the effective time, each executive will receive a lump sum payment of such executive’s prorated annual bonus for the fiscal year that includes the date on which the effective time occurs. The payment will be determined by multiplying the executive’s target award percentage by the executive’s base pay, prorated for the portion of the fiscal year elapsed prior to the effective time. The CIC agreement amendment clarifies that references to bonus throughout the agreement do not intend to refer to the maximum incentive compensation award payable under Albertsons’ bonus plan for its five mostly highly compensated officers, but rather to Albertsons’ annual incentive program.

Additionally, if, during the two-year period following the effective time (or prior to the effective time, but in connection with the Supervalu merger or at the request of a party attempting to effect a change of control of Albertsons), an executive’s employment is terminated other than for death, disability or “cause,” or if, during that period, the executive terminates employment for “good reason,” and in either case, the executive executes a release of claims in connection with the executive’s termination of employment, the agreements entitle the executive to the following benefits:

 

    within five business days of the executive’s termination, a lump sum cash payment equal to three times the sum of (1) the executive’s annual base salary (at the highest rate in effect for any period within the three years prior to the executive’s termination of employment) and (2) the executive’s incentive pay (not including amounts received under any Albertsons equity or long-term incentive compensation plans) calculated by multiplying the target award percentage under the applicable plan as in effect prior to the mergers by base salary;

 

    continuation for 36 months following the executive’s termination of employment of welfare benefits that are substantially similar to those the executive was receiving immediately prior to the executive’s termination of employment and continuation of COBRA benefits for an additional 18 months, reduced to the extent that comparable welfare benefits are actually received by the executive during the continuation period from another employer. The CIC agreement amendment provides that, if necessary to avoid a likely negative tax consequence to the executive, these benefits may be satisfied by the payment of a lump sum payment in lieu of continuation of benefits or in the case of health plan coverage, the provision of medical benefits continuation through insurance coverage obtained on an executive’s behalf instead of under Albertsons’ self-insured medical benefits plan;

 

    active service credit for the 36-month continuation period for purposes of determining the executive’s eligibility for retiree medical or life insurance benefits;

 

    outplacement services up to $50,000, which the CIC agreement amendment requires be completed by December 31st of the second calendar year following the calendar year in which the termination date occurs;

 

    within five business days of the executive’s termination, reimbursement for relocation in an amount set by the CIC agreement amendment at $100,000 if the executive was relocated while actively employed (including as a result of initial hire) within five years of the executive’s termination date; and

 

    gross-up payments in the event that the executive is subject to excise taxes under Section 4999 of the Code as a result of any amounts paid or distributed to him or her pursuant to the change of control severance agreement or otherwise.

The CIC agreement amendment provides that if any payment to be made under the agreement would occur at a time that does not qualify the payment as short-term deferral under Section 409A of the Code, the executive would receive payment upon the earlier of six months following his or her “separation from service” (as defined in the Code) or his or her death and be entitled to interest earnings, in a specified amount, on these payments.

The executives have agreed, pursuant to the agreements, if they have received or are receiving benefits under the agreements, not to engage in any activity that is competitive to Albertsons or its divisions or affiliates and not to solicit any employees of Albertsons or any of its subsidiaries for the one year period following termination of employment.

 

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Upon a change in control of Albertsons, Albertsons is required to fund a “rabbi” trust to secure payments required to be made under certain change of control arrangements, including Mr. Johnston’s employment agreement and the change of control severance agreements.

The table below lists the estimated aggregate cash payments and present value of non-cash benefits to which Albertsons’ Chief Executive Officer and four other most highly compensated officers during fiscal 2005, who are referred to as the named executive officers, would be entitled under his employment agreement (in the case of Mr. Johnston) or his or her change of control severance agreement (in the case of the other named executive officers) if the executive officer’s employment with Albertsons was terminated as of the effective time under circumstances entitling the named executive officer to payments under the applicable agreement. For purposes of these calculations, the effective time is assumed to be June 1, 2006. The table below also includes the aggregate amount of cash payments and the present value of non-cash benefits that would be payable under these circumstances to all of Albertsons’ executive officers as a group.

 

Name

   Prorated
Annual
Bonus (1)
  

3 x Base

Pay (2)

   36 Months
Welfare
Benefits
Continuation
  

Out-

placement
Services

   Relocation
Expenses
  

Fringe
Benefits/

Perquisites

   Excise Tax
Gross-Up
Payments

Lawrence R. Johnston (3)

   $ 482,212    $ 8,850,000    $ 35,818    $ 50,000    $ 100,000    $ 159,208    $ 12,914,475

Robert J. Dunst

     137,308      3,060,000      33,384      50,000      100,000      —        2,477,493

Paul T. Gannon

     154,471      3,442,500      44,511      50,000      —        —        2,079,232

John R. Sims

     123,577      2,754,000      62,992      50,000      100,000      —        2,207,486

Felicia D. Thornton

     143,029      3,187,500      46,240      50,000      100,000      —        2,502,031

All executive officers as a group

   $ 1,457,097    $ 30,576,000    $ 420,902    $ 450,000    $ 700,000    $ 159,208    $ 29,367,566

(1) Payable within five business days of the Supervalu merger whether or not service terminates.
(2) Calculated using base salary as of the date hereof.
(3) Excludes the costs and any associated excise tax gross up payments (which are not reasonably estimable) of providing Mr. Johnston the use of private aircraft for three years following termination and of repurchasing his primary Boise, Idaho residence.

Equity and Long-Term Incentive Awards

Except as provided in the next paragraph, options and other equity awards outstanding immediately prior to the reorganization merger will generally vest upon the effective time of the Supervalu merger and be treated as described under “The Transaction Agreements—The Merger Agreement—Merger Consideration—Options and Other Equity Awards,” beginning on page 102. The treatment of some of these awards will depend on whether the award holder will be employed by New Albertsons immediately prior to the Supervalu merger. We currently expect that most of Albertsons’ executive officers will be employed by New Albertsons immediately prior to the Supervalu merger.

In January 2006, Albertsons made grants of stock units for fiscal year 2005 performance under its 2004 Equity and Performance Incentive Plan to senior officers of Albertsons, including the named executive officers. These stock units currently provide for settlement in shares of Albertsons common stock. Upon the completion of the Supervalu merger, the stock units held by employees of New Albertsons will convert into stock units payable in Supervalu common stock, and the stock units held by individuals who are not employees of New Albertsons will convert into the right to receive cash. The stock units vest 25% per year over four years and fully vest upon termination of employment following the Supervalu merger if such termination is without “cause” or for “good reason” (as such terms are defined in the employment agreement or change of control severance agreement to which such executive is a party).

 

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The following table shows, with respect to the named executive officers and Albertsons’ executive officers as a group, (1) the number of stock options and stock units held as of March 1, 2006, that will vest as a result of the transactions, and (2) the number of stock units granted in January 2006 as described above. Mr. Johnston’s employment agreement entitles him to an additional equity award for fiscal 2006 with a value at grant of not less than 285% of the sum of his initial base salary and initial target bonus, each of which is $1,250,000. All stock options and stock units held by the non-employee directors of Albertsons are fully vested as of the date of the transactions.

 

Name

   Stock Options
(As of March 1, 2006)
   Stock Units
(As of March 1, 2006,
Excluding January
2006 Grant)
  

Stock Units

(Granted January 2006)

Lawrence R. Johnston

   1,100,461    1,114,753    282,300

Robert J. Dunst

   121,890    235,745    53,000

Paul T. Gannon

   75,594    149,702    10,000

John R. Sims

   140,600    212,260    50,000

Felicia D. Thornton

   138,853    217,819    44,000

All executive officers as a group

   1,951,068    2,459,823    609,300

All of Albertsons’ executive officers participate in the long-term cash incentive component of the Albertsons Long-Term Incentive Plan, which provides cash incentives based on performance over overlapping three-year cycles (although the cycle scheduled to conclude in 2006 is a two-year cycle). If the employment of a participant in an existing cycle is terminated following the Supervalu merger without cause or by the participant for good reason (in each case, as defined in the participant’s individual employment agreement or change of control severance agreement), the participant will receive a payment for such cycle that is based on the individual’s target award but prorated to reflect the portion of such cycle that elapsed prior to the mergers. If a participant remains employed at the end of the year during which the mergers occur, the participant’s minimum award for any cycle terminating at the end of that year will equal the prorated amount that would have been payable for the cycle (as described in the preceding sentence) if the participant’s employment had been terminated prior to the end of the year under the circumstances described in the preceding sentence. The following table lists, with respect to the named executive officers and all of Albertsons’ executive officers as a group, the estimated cash payment to which the executives would be entitled if the executive officer’s employment with Albertsons was terminated as of the effective time (assumed to be June 1, 2006) under circumstances entitling him or her to prorated payments (at target) under the outstanding 2005–2006, 2005–2007 and 2006–2008 Long-Term Incentive Plan performance periods.

 

Name

   LTIP Payment

Lawrence R. Johnston

   $ 627,111

Robert J. Dunst

     182,212

Paul T. Gannon

     204,988

John R. Sims

     163,990

Felicia D. Thornton

     189,804

All executive officers as a group

   $ 1,920,813

Deferred Compensation Plans

Albertsons maintains various deferred compensation and supplemental retirement plans and programs. On March 24, 2006, the Management Development/Compensation Committee of the Albertsons board authorized amendments to these plans and programs to provide each participant with the right to elect to receive an accelerated distribution of his or her benefits under the plans. Each participant will be entitled to elect to receive a distribution upon the earlier of (1) the existing payment date under the terms of the Albertsons deferred compensation plans or (2) the later of the effective time or January 1, 2007.

 

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The transactions will have the following effects on the deferred compensation plans and programs in which Albertsons’ executive officers and directors participate:

 

    Participants (including executive officers and directors) in the Albertsons 2000 Deferred Compensation Plan and the Albertsons Non-Employee Directors’ Deferred Compensation Plan who (1) elected the Moody’s rate as the investment option for amounts deferred under the plans prior to January 1, 2004, and (2) have not terminated employment or directorship with Albertsons as of the effective time, will receive interest credits with respect to their amounts deferred prior to January 1, 2004 in an amount equal to the Moody’s rate plus 3%. In addition, participants, including the executive officers, will be permitted to elect any of the available payment forms under the plans as a result of the transactions, rather than receiving the normal pre-retirement form of distribution in 60 monthly installments.

 

    Participants in the Albertsons Executive ASRE Makeup Plan (a 401(k) makeup plan), including the executive officers, will become 100% vested in the profit-sharing component of their accounts under the plan without regard to service requirements for vesting in such profit-sharing component.

 

    Amounts deferred and amounts to which participants are otherwise entitled under certain deferred compensation plans of Albertsons are funded by one or more trusts which become irrevocable upon a change in control of Albertsons. In addition, certain requirements and restrictions relating to investment and distribution of trust assets and the actions of the trustee also apply upon the occurrence of a change in control. The Supervalu merger will constitute a change in control under these trusts.

The following table lists, with respect to the named executive officers, Albertsons’ executive officers as a group and Albertsons’ non-management directors as a group, the amount of cash credited to their deferred compensation accounts as of March 3, 2006. Unvested balances will vest as a result of the Supervalu merger.

 

Name

   Vested Balances    Unvested Balances

Lawrence R. Johnston

   $ 3,579,443    $ 72,661

Robert J. Dunst

     619,405      6,683

Paul T. Gannon

     267,376      -0-

John R. Sims

     340,260      77,340

Felicia D. Thornton

     1,468,005      100,030

All executive officers as a group

   $ 10,816,444    $ 280,232

All non-management directors as a group

   $ 4,504,402      -0-

In addition to the account balance plans described above, Albertsons also maintains non-account balance plans, whereby the participants are entitled to receive an annuity payment based on prior average compensation. Participants in these plans will also be able to elect to receive a lump sum accelerated distribution of accrued benefits as described above. The present value of the non-account balance plan benefits will be determined by using the average yield to maturity for 30-year US Government Bonds and the unloaded 94 GAR mortality rates, blended 50% male and 50% female, projected to 2002. Of the named executive officers and non-management directors, other than Mr. Johnston as described above, only Mr. Gannon (a named executive officer) and Teresa Beck (a non-management director) participate in this type of plan. Mr. Gannon’s arrangements relate to his service with Shaw’s Supermarkets, Inc. prior to its acquisition by Albertsons in 2004. Ms. Beck’s arrangements relate to her service with American Stores Company prior its acquisition by Albertsons in 1999. The estimated present value as of June 1, 2006 of Mr. Gannon’s accrued benefit under his arrangements, assuming he elects to receive an accelerated lump sum distribution of the accrued benefit, is $3,336,439. The estimated present value as of June 1, 2006 of Ms. Beck’s accrued benefit under her arrangements, assuming she elects to receive an accelerated lump sum distribution of the accrued benefit, is $2,077,905.

Accounting Treatment

The mergers will be accounted for as a business combination using the purchase method of accounting. Supervalu will be the acquirer of New Albertsons for accounting purposes.

 

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Financing of the Mergers

In connection with the signing of the merger agreement, Supervalu entered into a financing commitment letter with The Royal Bank of Scotland PLC and RBS Securities Corporation, which are referred to together as the financing parties. This financing commitment letter contemplates a $2.0 billion senior secured revolving credit facility, a $1.25 billion senior secured term A loan facility and a $750 million senior secured term B loan facility. Supervalu intends to use the proceeds of these facilities, together with other funds, to finance the transactions and pay related transaction costs, to provide working capital, to make capital expenditures, and for the general corporate purposes of Supervalu and its subsidiaries.

The obligations of the financing parties to make available any of the facilities are subject to the satisfaction or waiver of a number of conditions including, without limitation:

 

    with respect to the assets to be acquired from Albertsons, the absence of any change, event, or occurrence since November 3, 2005, that has had or would reasonably be expected to have, individually or in the aggregate, a material adverse effect on the core business of Albertsons;

 

    with respect to Supervalu and its subsidiaries, the absence of any event, change or condition since February 26, 2005, that, individually or in the aggregate, has had, or could reasonably be expected to have, a material adverse effect on the business, assets, liabilities, operations, condition (financial or otherwise) or operating results of Supervalu and its subsidiaries, taken as a whole;

 

    completion of the final documentation for the facilities reasonably satisfactory to the financing parties and their counsel;

 

    the mergers having been consummated pursuant to the merger agreement substantially simultaneously with the funding of the facilities and no material provision or condition of the merger agreement having been waived, amended, supplemented or otherwise modified in a manner that is material and adverse to the lenders under the facilities, without the prior written consent of RBS Securities Corporation, the lead arranger of the facilities; and

 

    certain other customary closing conditions, including delivery of customary legal opinions and officers’ certifications, completion of certain collateral arrangements, and the payment of fees and expenses.

Subject to certain exceptions, each wholly owned direct and indirect U.S. subsidiary of Supervalu will guarantee the obligations under the facilities. Subject to certain exceptions, the obligations of Supervalu and the guarantors will be secured by a pledge of the equity interests in each material direct and indirect U.S. subsidiary of Supervalu, limited as required by the existing public indentures of Supervalu, Albertsons and American Stores Company LLC such that the debt issued pursuant to those indentures need not be equally and ratably secured. The facilities will also include other covenants and restrictions customary for senior secured credit facilities.

The financing commitment letter and each of the facilities are subject to termination on the earlier of (a) September 22, 2006, and (b) the date the merger agreement is terminated. The receipt of financing by Supervalu is not a condition to the obligations of the parties to complete the mergers.

Stockholder Approval

Albertsons stockholders are being asked to adopt the merger agreement and to adopt the charter amendment at the Albertsons special meeting. Under Delaware law, the merger agreement will also need to be adopted by the stockholder(s) of New Albertsons to effect the Supervalu merger. Albertsons will be the sole stockholder of New Albertsons prior to the initial effective time, and will adopt the merger agreement prior to the initial effective time in its capacity as the sole stockholder of New Albertsons.

If the charter amendment becomes effective and the Supervalu merger occurs, dissenting stockholders, if any, will have an opportunity to exercise appraisal rights in connection with the reorganization merger, as discussed in “The Mergers—Appraisal Rights of Albertsons Stockholders” beginning on page 92.

 

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Supervalu’s stockholders are being asked to approve the issuance of shares of Supervalu common stock in connection with the Supervalu merger at the Supervalu special meeting.

Regulatory Matters

Under the HSR Act, the transactions may not be completed until notifications have been submitted to the FTC and the Antitrust Division and specified waiting period requirements have been satisfied. Notification and Report Forms under the HSR Act with respect to the merger agreement, the separation agreement, and the standalone drug sale agreement were filed on February 9, 2006. The waiting period for all of the transactions expired on March 13, 2006 without the imposition by the FTC or the Antitrust Division of any conditions to or restrictions on the consummation of the transactions.

At any time before or after the completion of the transactions, the FTC, the Antitrust Division, or state attorneys general could take action under the antitrust laws, as they deem necessary or desirable in the public interest, seeking to enjoin completion of the transactions, or to rescind the transactions. Private parties also may seek to take action under the antitrust laws under certain circumstances. As in every transaction, there can be no assurance that a challenge to the transactions on antitrust grounds will not be made or, if such a challenge is made, that it will not be successful. Please see “The Transaction Agreements—The Merger Agreement—Covenants and Agreements—Regulatory and Antitrust Approvals and Clearances,” beginning on page 109, and “Risk Factors—Supervalu may be required under the merger agreement to dispose of significant assets if required by governmental entities in order to resolve potential antitrust objections to the mergers,” beginning on page 21, for more information.

Appraisal Rights of Albertsons Stockholders

If the charter amendment is adopted at the Albertsons special meeting and becomes effective and the Supervalu merger occurs, holders of Albertsons common stock will be entitled to appraisal rights in connection with the reorganization merger, subject to compliance with the procedures described in more detail in this section. If the charter amendment is not approved at the Albertsons special meeting, holders of Albertsons stock will not have appraisal rights in connection with the reorganization merger. Regardless of whether the charter amendment is approved at the Albertsons special meeting, there will be no appraisal rights in connection with the Supervalu merger. Accordingly, holders of Albertsons common stock who wish to exercise their rights to obtain a judicial appraisal of the fair value of their shares of Albertsons common stock should do so in connection with the reorganization merger, if applicable, following the procedures described in this joint proxy statement/prospectus. There will not be any opportunity to exercise appraisal rights in connection with the Supervalu merger.

If the charter amendment is adopted at the Albertsons special meeting and becomes effective, holders of record of Albertsons common stock who do not vote in favor of the adoption of the merger agreement, and who otherwise comply with the applicable provisions of Section 262 of the DGCL, will be entitled to exercise appraisal rights under Section 262 of the DGCL in connection with the reorganization merger, provided that the Supervalu merger is completed. A person having a beneficial interest in shares of Albertsons common stock held of record in the name of another person, such as a broker, bank or other nominee, must act promptly to cause the record holder to follow the steps summarized below properly and in a timely manner to perfect appraisal rights.

The following discussion is not a complete statement of the law pertaining to appraisal rights under the DGCL and is qualified in its entirety by the full text of Section 262 of the DGCL, which is reprinted in its entirety as Annex G and incorporated into this joint proxy statement/prospectus by reference. Further, the following discussion applies if, and only if, the charter amendment is approved by Albertsons stockholders at the special meeting and the Supervalu merger is completed. If the amendment is not approved, or if the Supervalu merger is not completed, Albertsons stockholders will have no appraisal rights in connection with the reorganization merger. In no circumstances will New Albertsons stockholders

 

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have appraisal rights in connection with the Supervalu merger. All references in Section 262 of the DGCL and in this summary to a “stockholder” or “holder” are to the record holder of the shares of Albertsons common stock as to which appraisal rights are asserted.

Holders of shares of Albertsons common stock who follow the procedures set forth in Section 262 of the DGCL will be entitled to have their Albertsons common stock appraised by the Delaware Court of Chancery and to receive, in lieu of the shares of New Albertsons common stock they would otherwise receive in the reorganization merger, payment in cash of the “fair value” of the shares of Albertsons common stock, exclusive of any element of value arising from the accomplishment or expectation of the reorganization merger, together with a fair rate of interest, if any, as determined by that court.

Under Section 262 of the DGCL, when a proposed merger of a Delaware corporation is to be submitted for approval at a meeting of its stockholders, the corporation, not less than 20 days prior to the meeting, must notify each of its stockholders who was a stockholder on the record date for this meeting with respect to shares for which appraisal rights are available, that appraisal rights are so available, and must include in this required notice a copy of Section 262 of the DGCL.

This joint proxy statement/prospectus constitutes the required notice to the holders of the shares of Albertsons common stock in respect of the reorganization merger and Section 262 of the DGCL is attached to this joint proxy statement/prospectus as Annex G. Any Albertsons stockholder who wishes to exercise their appraisal rights in connection with the reorganization merger or who wishes to preserve their right to do so should review the following discussion and Annex G carefully, because failure to timely and properly comply with the procedures specified in Annex G will result in the loss of appraisal rights under the DGCL.

A holder of Albertsons common stock wishing to exercise appraisal rights must not vote in favor of the adoption of the merger agreement, and must deliver to Albertsons before the taking of the vote on the adoption of the merger agreement at the Albertsons special meeting a written demand for appraisal of their Albertsons common stock. This written demand for appraisal must be separate from any proxy or ballot abstaining from the vote on the adoption of the merger agreement or instructing or effecting a vote against the adoption of the merger agreement. This demand must reasonably inform Albertsons of the identity of the stockholder and of the stockholder’s intent thereby to demand appraisal of their shares in connection with the reorganization merger. A holder of Albertsons common stock wishing to exercise appraisal rights must be the record holder of the shares of Albertsons common stock on the date the written demand for appraisal is made and must continue to hold the shares of Albertsons common stock through the effective date of the reorganization merger. Accordingly, a holder of Albertsons common stock who is the record holder of Albertsons common stock on the date the written demand for appraisal is made, but who thereafter transfers the shares of Albertsons common stock prior to consummation of the reorganization merger, will lose any right to appraisal in respect of the shares of Albertsons common stock.

A proxy that is signed and does not contain voting instructions will, unless revoked, be voted in favor of the adoption of the merger agreement, and it will constitute a waiver of the stockholder’s right of appraisal and will nullify any previously delivered written demand for appraisal. Therefore, a stockholder who votes by proxy and who wishes to exercise appraisal rights must vote AGAINST adoption of the merger agreement, or abstain from voting on the adoption of the merger agreement.

Only a holder of record of Albertsons common stock on the date of the making of a demand for appraisal will be entitled to assert appraisal rights for the shares of Albertsons common stock registered in that holder’s name. A demand for appraisal should be executed by or on behalf of the holder of record, fully and correctly, as the holder’s name appears on the holder’s stock certificates, and must state that the person intends to demand appraisal of the holder’s shares. If the shares of Albertsons common stock are held of record by a person other than the beneficial owner, including a broker, fiduciary (such as a trustee, guardian or

 

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custodian), depository or other nominee, execution of the demand should be made in that capacity, and if the Albertsons common stock is held of record by more than one holder as in a joint tenancy or tenancy in common, the demand should be executed by or on behalf of all joint holders. An authorized agent, including an agent for one or more joint holders, may execute a demand for appraisal on behalf of a holder of record. The agent, however, must identify the record holder or holders and expressly disclose the fact that, in executing the demand, the agent is acting as agent for the record holder or holders. A record holder such as a broker who holds Albertsons common stock as nominee for several beneficial owners may exercise appraisal rights with respect to the shares of Albertsons common stock held for one or more beneficial owners while not exercising appraisal rights with respect to the Albertsons common stock held for other beneficial owners. In this case, the written demand should set forth the number of shares of Albertsons common stock as to which appraisal is sought. When no number of shares of Albertsons common stock is expressly mentioned, the demand will be presumed to cover all Albertsons common stock in brokerage accounts or other nominee forms held by such record holder, and those who hold shares in brokerage accounts or other nominee forms and who wish to exercise appraisal rights under Section 262 of the DGCL are urged to consult with their brokers to determine the appropriate procedures for the making of a demand for appraisal by such a nominee.

All written demands for appraisal should be sent or delivered to Albertson’s, Inc., 250 East Parkcenter Boulevard, Boise, Idaho 83706, Attention: Corporate Secretary.

Within ten days after the effective date of the reorganization merger, New Albertsons, or its successor, which we refer to generally as the surviving company, will notify each former Albertsons stockholder who has properly asserted appraisal rights under Section 262 of the DGCL, and has not voted in favor of the adoption of the merger agreement, of the date the reorganization merger became effective.

Within 120 days after the effective date of the reorganization merger, but not thereafter, the surviving company or any former Albertsons stockholder who has complied with the statutory requirements summarized above may file a petition in the Delaware Court of Chancery, with a copy served on the surviving corporation in the case of a petition filed by the stockholder, demanding a determination of the fair value of the shares of Albertsons common stock that are entitled to appraisal rights. None of Supervalu, the surviving company or Albertsons is under any obligation to and none of them has any present intention to file a petition with respect to the appraisal of the fair value of the shares of Albertsons common stock, and stockholders seeking to exercise appraisal rights should not assume that the surviving company, Albertsons or Supervalu will initiate any negotiations with respect to the fair value of such shares. Accordingly, it is the obligation of Albertsons stockholders wishing to assert appraisal rights to take all necessary action to perfect and maintain their appraisal rights within the time prescribed in Section 262 of the DGCL.

Within 120 days after the effective date of the reorganization merger, any former Albertsons stockholder who has complied with the requirements for exercise of appraisal rights will be entitled, upon written request, to receive from the surviving company or its successor a statement setting forth the aggregate number of shares of Albertsons common stock not voted in favor of adopting the merger agreement, and with respect to which demands for appraisal have been received and the aggregate number of former holders of these shares of Albertsons common stock. These statements must be mailed within ten days after a written request therefor has been received by the surviving company or within 10 days after expiration of the period for delivery of demands for appraisal under Section 262 of the DGCL, whichever is later.

If a petition for an appraisal is filed timely with the Delaware Court of Chancery by a former Albertsons stockholder and a copy thereof is served upon the surviving company, the surviving company will then be obligated within 20 days of service to file with the Delaware Register in Chancery a duly verified list containing the names and addresses of all former Albertsons stockholders who have demanded appraisal of their shares of Albertsons common stock and with whom agreements as to value have not been reached. After notice to such former Albertsons stockholders as required by the Delaware Court of Chancery, the Delaware Court of Chancery shall conduct a hearing on such petition to determine those former Albertsons stockholders who have complied

 

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with Section 262 of the DGCL and who have become entitled to appraisal rights thereunder. The Delaware Court of Chancery may require the former Albertsons stockholders who demanded appraisal of their shares of Albertsons common stock to submit their stock certificates to the Register in Chancery for notation thereon of the pendency of the appraisal proceeding. If any former stockholder fails to comply with such direction, the Delaware Court of Chancery may dismiss the proceedings as to that former stockholder.

After determining which, if any, former Albertsons stockholders are entitled to appraisal, the Delaware Court of Chancery will appraise their shares of Albertsons common stock, determining their “fair value,” exclusive of any element of value arising from the accomplishment or expectation of the reorganization merger, together with a fair rate of interest, if any, to be paid upon the amount determined to be the fair value. Albertsons stockholders considering seeking appraisal should be aware that the fair value of their shares of Albertsons common stock as determined under Section 262 of the DGCL could be more than, the same as or less than the value of the consideration they would receive pursuant to the merger agreement if they did not seek appraisal of their shares of Albertsons common stock and that the investment banking opinions as to fairness from a financial point of view included in this joint proxy statement/prospectus are not necessarily opinions as to fair value under Section 262 of the DGCL.

In determining “fair value,” the Delaware Court of Chancery is required to take into account all relevant factors. In Weinberger v. UOP, Inc., the Delaware Supreme Court discussed the factors that could be considered in determining fair value in an appraisal proceeding, stating that “proof of value by any techniques or methods which are generally considered acceptable in the financial community and otherwise admissible in court” should be considered and that “[f]air price obviously requires consideration of all relevant factors involving the value of a company.” The Delaware Supreme Court has stated that in making this determination of fair value the court must consider market value, asset value, dividends, earnings prospects, the nature of the enterprise and any other facts which could be ascertained as of the date of the merger which throw any light on future prospects of the merged corporation. Section 262 of the DGCL provides that fair value is to be “exclusive of any element of value arising from the accomplishment or expectation of the merger.” In Cede & Co. v. Technicolor, Inc., the Delaware Supreme Court stated that such exclusion is a “narrow exclusion [that] does not encompass known elements of value,” but which rather applies only to the speculative elements of value arising from such accomplishment or expectation. In Weinberger, the Delaware Supreme Court construed Section 262 of the DGCL to mean that “elements of future value, including the nature of the enterprise, which are known or susceptible of proof as of the date of the merger and not the product of speculation, may be considered.”

In addition, Delaware courts have decided that a stockholder’s statutory appraisal remedy may or may not be a dissenter’s exclusive remedy, depending on the factual circumstances.

The costs of the appraisal action may be determined by the Delaware Court of Chancery and levied upon the parties as the Delaware Court of Chancery deems equitable. Upon application of a former Albertsons stockholder, the Delaware Court of Chancery may also order that all or a portion of the expenses incurred by any former Albertsons stockholder in connection with an appraisal proceeding, including, without limitation, reasonable attorneys’ fees and the fees and expenses of experts used in the appraisal proceeding, be charged pro rata against the value of all of the shares of Albertsons common stock entitled to appraisal.

Any holder of Albertsons common stock who has duly demanded an appraisal in compliance with Section 262 of the DGCL will not, after the consummation of the reorganization merger, be entitled to vote the shares of Albertsons common stock subject to this demand for any purpose or be entitled to the payment of dividends or other distributions on those shares of Albertsons common stock (except dividends or other distributions payable to holders of record of Albertsons common stock as of a record date prior to the effective date of the reorganization merger).

If any stockholder who properly demands appraisal of his, her or its Albertsons common stock under Section 262 of the DGCL fails to perfect, or effectively withdraws or loses, his, her or its right to appraisal, as

 

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provided in Section 262 of the DGCL, that stockholder’s shares of Albertsons common stock will be deemed to have been converted into New Albertsons common stock in the reorganization merger (without interest), and that New Albertsons common stock will be deemed to have converted into the right to receive the merger consideration payable (without interest) in the Supervalu merger in respect of those New Albertsons shares. An Albertsons stockholder will fail to perfect, or effectively lose or withdraw, his, her or its right to appraisal if, among other things, no petition for appraisal is filed within 120 days after the effective date of the reorganization merger, or if the stockholder delivers to Albertsons or the surviving company, as the case may be, a written withdrawal of their demand for appraisal. Any attempt to withdraw an appraisal demand in this matter more than 60 days after the effective date of the reorganization merger will require the written approval of the surviving company and, once a petition for appraisal is filed, the appraisal proceeding may not be dismissed as to any holder absent court approval.

Failure to follow the steps required by Section 262 of the DGCL for perfecting appraisal rights may result in the loss of these rights, in which event the shares held by the Albertsons stockholder will be deemed to have been converted into New Albertsons common stock in the reorganization merger (without interest), and that New Albertsons common stock will be deemed to have converted into the right to receive the merger consideration payable (without interest) in the Supervalu merger in respect of those New Albertsons shares.

Any stockholder wishing to exercise appraisal rights is urged to consult with legal counsel prior to attempting to exercise such rights.

Delisting and Deregistration of Albertsons Common Stock

If the reorganization merger is completed, the common stock of Albertsons will be delisted from the NYSE and will be deregistered under the Exchange Act. The stockholders of Albertsons will become stockholders of New Albertsons and their rights as stockholders will be governed by applicable Delaware law and by New Albertsons’ certificate of incorporation and by-laws. See “Comparison of Rights of Stockholders” beginning on page 156.

Listing, Registration, Delisting and Deregistration of New Albertsons Common Stock

Shares of New Albertsons will be registered under the Exchange Act. Application will be made to have the shares of New Albertsons common stock issued in the reorganization merger approved for listing on the NYSE prior to the effective time of the reorganization merger.

If the Supervalu merger is completed, New Albertsons common stock will no longer be listed on the NYSE and will be deregistered under the Exchange Act. The stockholders of New Albertsons will become stockholders of Supervalu and their rights as stockholders will be governed by applicable Delaware law and by Supervalu’s certificate of incorporation and by-laws. See “Comparison of Rights of Stockholders” beginning on page 156.

Federal Securities Laws Consequences; Resale Restrictions

All shares of New Albertsons common stock that will be held by former Albertsons stockholders after the reorganization merger, and all shares of Supervalu common stock that will be held by former New Albertsons stockholders after the Supervalu merger, will be freely transferable, except for restrictions applicable to “affiliates” of Albertsons or New Albertsons, respectively, and except that resale restrictions may be imposed by securities laws in non-U.S. jurisdictions insofar as subsequent trades are made within these jurisdictions. Persons who are deemed to be affiliates of Albertsons or New Albertsons may resell shares of New Albertsons or Supervalu common stock received by them only in transactions permitted by the resale provisions of Rule 145 or as otherwise permitted under the Securities Act of 1933. Persons who may be deemed to be affiliates of Albertsons or New Albertsons generally include executive officers, directors and holders of more than 10% of the outstanding shares of Albertsons or New Albertsons. The merger agreement requires Albertsons to use its

 

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reasonable best efforts to cause persons who Albertsons believes may be deemed to be affiliates of Albertsons to execute a written agreement to the effect that those persons will not sell, assign or transfer any of the shares of New Albertsons or Supervalu common stock issued to them in the reorganization merger or the Supervalu merger unless that sale, assignment or transfer has been registered under the Securities Act of 1933, is in conformity with Rule 145 or is otherwise exempt from the registration requirements under the Securities Act of 1933.

This joint proxy statement/prospectus does not cover any resales of the shares of New Albertsons common stock to be received by Albertsons stockholders in the reorganization merger, or any resales of the shares of Supervalu common stock to be received by New Albertsons stockholders in the Supervalu merger, and no person is authorized to make any use of this joint proxy statement/prospectus in connection with any resale.

Immediately after the completion of the reorganization merger, the stock certificates that represent shares of Albertsons common stock will represent shares of New Albertsons common stock, without any further action by Albertsons, New Albertsons, or any holder of Albertsons common stock, except for the certificates of holders who have duly demanded appraisal of their Albertsons common stock in accordance with Section 262 of the DGCL. No new certificates representing shares of New Albertsons stock will be issued to replace the certificates that previously represented shares of Albertsons stock.

Legal Proceedings

On January 24, 2006, a putative class action complaint was filed in the Fourth Judicial District of the State of Idaho in and for the County of Ada, naming Albertsons and its directors as defendants. The action, Christopher Carmona v. Henry Bryant et al., No. CV-OC-0601251, which was removed to the United States District Court for the District of Idaho, as No. 1:06-CV-78-BLW and has since been remanded to Idaho state court, challenges the merger agreement and related transactions. Specifically, the complaint alleges that Albertsons and its directors violated applicable law by directly breaching and/or aiding the other defendants’ breaches of their fiduciary duties, including by failing to value Albertsons properly and by ignoring conflicts of interest. Among other things, the complaint seeks preliminary and permanent injunctive relief to enjoin the completion of the mergers, rescission of the mergers to the extent implemented, and an imposition of a constructive trust in favor of plaintiff for any benefits improperly received by defendants. Albertsons believes that the claims asserted in this action are without merit and intends to defend this suit vigorously.

Formal discovery has not yet begun in the matter.

 

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MATERIAL UNITED STATES FEDERAL INCOME TAX CONSEQUENCES

The following is a summary of the material United States federal income tax consequences of the mergers to U.S. holders of Albertsons common stock who hold their stock as a capital asset. The summary is based on the Internal Revenue Code of 1986, as amended, referred to as the Code, Treasury Regulations issued under the Code, and administrative rulings and court decisions in effect as of the date of this joint proxy statement/prospectus, all of which are subject to change at any time, possibly with retroactive effect.

For purposes of this discussion, the term “U.S. holder” means:

 

    a citizen or resident of the United States;

 

    a corporation created or organized under the laws of the United States or any of its political subdivisions;

 

    a trust that (i) is subject to the supervision of a court within the United States and the control of one or more United States persons or (ii) has a valid election in effect under applicable United States Treasury regulations to be treated as a United States person; or

 

    an estate that is subject to United States federal income tax on its income regardless of its source.

If a partnership holds Albertsons common stock, the tax treatment of a partner will generally depend on the status of the partners and the activities of the partnership. If a U.S. holder is a partner in a partnership holding Albertsons common stock, the U.S. holder should consult its tax advisors.

This summary is not a complete description of all the tax consequences of the mergers and, in particular, may not address United States federal income tax considerations applicable to holders of Albertsons or Supervalu common stock who are subject to special treatment under United States federal income tax law (including, for example, non-United States persons, financial institutions, dealers in securities, insurance companies or tax-exempt entities, holders who acquired Albertsons common stock pursuant to the exercise of an employee stock option or right or otherwise as compensation, and holders who hold Albertsons common stock as part of a hedge, straddle or conversion transaction). This summary does not address the tax consequences of any matter other than the mergers. This summary does not address the tax consequences to any person who actually or constructively owns 5% or more of Albertsons common stock. Also, this summary does not address United States federal income tax considerations applicable to holders of options or warrants to purchase Albertsons common stock, or holders of debt instruments convertible into Albertsons common stock. In addition, no information is provided with respect to the tax consequences of the mergers under applicable state, local or non-United States laws.

The discussion of the material United States federal income tax consequences of the mergers that follows is not binding on the Internal Revenue Service, referred to as the IRS, or the courts. Accordingly, there can be no assurance that the IRS will not challenge the conclusions expressed in the discussion below, or that a court will not sustain such a challenge. The following discussion assumes that the exchange of Albertsons common stock for New Albertsons common stock pursuant to the reorganization merger will constitute a reorganization within the meaning of Section 368(a) of the Code.

Federal Income Tax Consequences of the Mergers to Albertsons Stockholders

A holder of Albertsons common stock generally will not recognize gain or loss upon receipt of New Albertsons common stock in the reorganization merger, and the holding period in the New Albertsons common stock will be computed by including the holding period in the Albertsons common stock converted into New Albertsons common stock in the reorganization merger.

Pursuant to the Supervalu merger, the receipt of the merger consideration by New Albertsons stockholders in exchange for shares of New Albertsons common stock will be a taxable transaction for United States federal

 

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income tax purposes. In general, a U.S. holder who receives the merger consideration in exchange for shares of New Albertsons common stock pursuant to the Supervalu merger will recognize capital gain or loss for United States federal income tax purposes equal to the difference, if any, between (i) the sum of the fair market value of the Supervalu common stock as of the effective time of the Supervalu merger and the amount of cash received and (ii) the holder’s adjusted tax basis in the shares of New Albertsons common stock, which will be the holder’s adjusted basis in the holder’s Albertsons common stock exchanged for the New Albertsons common stock in the reorganization merger. Capital gain or loss will be determined separately for each block of shares (i.e., shares acquired at the same cost in a single transaction) of New Albertsons common stock surrendered for the consideration described above pursuant to the Supervalu merger. Any gain or loss would be long-term capital gain or loss if the holding period of the shares of New Albertsons common stock (computed by including the holding period in the shares of Albertsons common stock converted into New Albertsons common stock in the reorganization merger) exceeds one year at the effective time. Long-term capital gains of noncorporate U.S. holders (including individuals) generally are eligible for preferential rates of United States federal income tax. There are limitations on the deductibility of capital losses under the Code. New Albertsons stockholders that recognize a loss on the exchange of their New Albertsons common stock pursuant to the Supervalu merger should consult their tax advisors regarding allowance of this loss.

Backup Withholding

Backup withholding may apply with respect to the cash consideration received by a holder of Albertsons common stock in the Supervalu merger unless the holder:

 

    is a corporation or comes within certain other exempt categories and, when required, demonstrates this fact; or

 

    provides a correct taxpayer identification number, certifies as to no loss of exemption from backup withholding and that such holder is a U.S. person (including a U.S. resident alien), and otherwise complies with applicable requirements of the backup withholding rules.

A holder of Albertsons common stock who does not provide Supervalu (or the exchange agent) with its correct taxpayer identification number may be subject to penalties imposed by the IRS. Any amounts withheld under the backup withholding rules may be allowed as a refund or a credit against the holder’s federal income tax liability, provided that the holder timely furnishes certain required information to the IRS.

THE FOREGOING DISCUSSION OF UNITED STATES FEDERAL INCOME TAX CONSEQUENCES IS FOR GENERAL INFORMATION PURPOSES ONLY AND IS NOT INTENDED TO CONSTITUTE A COMPLETE DESCRIPTION OF ALL TAX CONSEQUENCES RELATING TO THE MERGERS. TAX MATTERS ARE VERY COMPLICATED, AND THE TAX CONSEQUENCES OF THE MERGERS TO YOU WILL DEPEND UPON THE FACTS OF YOUR PARTICULAR SITUATION. BECAUSE INDIVIDUAL CIRCUMSTANCES MAY DIFFER, WE URGE YOU TO CONSULT WITH YOUR TAX ADVISOR REGARDING THE APPLICABILITY TO YOU OF THE RULES DISCUSSED ABOVE AND THE PARTICULAR TAX EFFECTS TO YOU OF THE MERGERS, INCLUDING THE APPLICATION OF STATE, LOCAL AND FOREIGN TAX LAWS.

 

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THE TRANSACTION AGREEMENTS

The Merger Agreement

The following is a summary of certain material provisions of the merger agreement, a copy of which is attached as Annex A to this joint proxy statement/prospectus and is incorporated into this joint proxy statement/prospectus by reference. We urge you to read carefully this entire joint proxy statement/prospectus, including the merger agreement and the other annexes and the other documents to which we have referred you. See “Where You Can Find More Information” beginning on page 168.

The merger agreement should be read in conjunction with the disclosures in Supervalu’s and Albertsons’ filings with the SEC incorporated by reference into this joint proxy statement/prospectus. See “Where You Can Find More Information” beginning on page 168 for the filings with the SEC incorporated by reference into this joint proxy statement/prospectus. The provisions contained in the merger agreement are intended to govern the contractual rights and relationships, and to allocate risks, between Supervalu and Albertsons with respect to the mergers. The representations and warranties made by Supervalu and Albertsons to one another in the merger agreement were negotiated between the parties, and any inaccuracies in the representations and warranties may be waived by the beneficiary of such representations and warranties. Moreover, the representations and warranties are qualified in a number of important respects, including through the use of broad exceptions for matters disclosed by the party that made the representations and warranties to the other party. None of the representations and warranties will survive the closing of the Supervalu merger and, in general, a party will not be entitled to assert the inaccuracy of any of the representations and warranties of another party as a basis for refusing to complete either of the mergers, unless the inaccuracy has had or would reasonably be expected to have a material adverse effect on the consolidated business, financial condition or results of operations of the party that made the representations and warranties (or, in the case of the representations and warranties of Albertsons, on the core business).

Supervalu and Albertsons have provided additional disclosure in their public reports and other filings with the SEC to the extent that they are aware of the existence of any material facts that are required to be disclosed under the federal securities laws and that might otherwise contradict the representations and warranties contained in the merger agreement and will update such disclosure as required by the federal securities laws.

The Reorganization Merger; Initial Closing

Upon the terms and subject to the conditions of the merger agreement, New Diamond Sub will merge with and into Albertsons. As a result of this reorganization merger, the separate corporate existence of New Diamond Sub will cease, and Albertsons will become a wholly owned subsidiary of New Albertsons.

The closing of the reorganization merger is scheduled to occur no later than the second business day following the date on which all of the conditions to the mergers, other than conditions that, by their terms, cannot be satisfied until the closing date (but subject to satisfaction of those conditions), have been satisfied or waived, unless the parties agree on another time.

As soon as practicable on the closing date of the reorganization merger, Albertsons and Supervalu will file a certificate of merger relating to the reorganization merger with the Secretary of State of the State of Delaware. The initial effective time will be the time Albertsons files the certificate of merger or at a later time Supervalu and Albertsons may agree and specify in the certificate of merger.

The Supervalu Merger; Closing

After the consummation of the reorganization merger, and after the completion of the separation and standalone drug sale (as described below), Acquisition Sub will merge with and into New Albertsons, upon the terms and subject to the conditions of the merger agreement. As a result of the Supervalu merger, the separate corporate existence of Acquisition Sub will cease, and New Albertsons will become a wholly owned subsidiary of Supervalu.

 

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The closing of the Supervalu merger is scheduled to occur on the date of the closing of the reorganization merger or as promptly as possible thereafter (but not more than two business days after the date of the closing of the reorganization merger) unless the parties agree on another time. Supervalu and Albertsons expect to complete the mergers in the second quarter of calendar year 2006. However, we cannot assure you that such timing will occur or that the mergers will be completed as expected.

As soon as practicable on or after the closing date of the Supervalu merger, Supervalu and New Albertsons will file a certificate of merger relating to the Supervalu merger with the Secretary of State of the State of Delaware. The effective time will be the time Supervalu and Albertsons file this certificate of merger or such later time as Supervalu and Albertsons may agree and specify in the certificate of merger.

Directors and Officers

Albertsons and Supervalu have agreed that the directors and officers of Albertsons immediately prior to the initial effective time will be the directors and officers of New Albertsons from and after the initial effective time until the Supervalu merger is completed.

The directors of Acquisition Sub immediately prior to the effective time will be the directors of New Albertsons, as the surviving company in the Supervalu merger, immediately after the effective time. The officers of New Albertsons immediately prior to the effective time will continue to be the officers of New Albertsons, as the surviving company in the Supervalu merger, immediately after the effective time.

Supervalu has agreed to take actions to cause, as of immediately following the effective time, the number of directors on its board of directors to be no more than fourteen, and to cause there to be three vacancies on its board of directors at that time. In addition, Supervalu has agreed to use its reasonable best efforts to cause three of the independent members of Albertsons’ board of directors to be elected or appointed to Supervalu’s board of directors immediately after the effective time.

Merger Consideration

Upon the effectiveness of the reorganization merger, without any further action on the part of any stockholder of Albertsons, each share of Albertsons common stock outstanding immediately prior to the initial effective time (other than shares held by any dissenting Albertsons stockholders that have properly exercised appraisal rights in accordance with Delaware law as described above) will be converted into the right to receive one share of common stock of New Albertsons.

Upon the effectiveness of the reorganization merger, each share of Albertsons common stock held by Albertsons immediately prior to the reorganization merger will be automatically cancelled and extinguished.

Upon the effectiveness of the Supervalu merger, each share of New Albertsons common stock outstanding as of immediately prior to the effective time will be converted into the right to receive from Supervalu the merger consideration, consisting of the following:

 

    $20.35 in cash, without interest; and

 

    0.182 shares of Supervalu common stock.

Based on amounts outstanding as of November 3, 2005, approximately $6.5 billion of Albertsons debt will remain outstanding as debt of Supervalu or its subsidiaries (including New Albertsons).

The exchange ratio in the merger and the cash consideration will be appropriately adjusted to reflect the effect, in general, of any reclassification, reverse stock split, stock dividend, reclassification or redenomination with respect to Supervalu common stock, Albertsons common stock (before the initial effective time) or New Albertsons common stock (after the initial effective time) that occurs between the date of the merger agreement and the date of completion of the Supervalu merger.

Upon completion of the Supervalu merger, each share of New Albertsons common stock held by Supervalu, New Albertsons or any direct or indirect wholly owned subsidiary of Supervalu or New Albertsons immediately

 

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prior to the Supervalu merger will be automatically cancelled and extinguished, and none of Supervalu, New Albertsons or any of their respective direct or indirect wholly owned subsidiaries will receive any consideration in exchange for those shares.

Options and Other Equity Awards

Each option to purchase Albertsons stock outstanding immediately prior to the reorganization merger will be assumed by New Albertsons at the initial effective time and will become exercisable for the number of shares of New Albertsons stock equal to the number of Albertsons shares issuable upon exercise of that option immediately before the reorganization merger. All such options will accelerate and become immediately exercisable in connection with the mergers to the extent permitted under the terms of the Albertsons stock plans.

Each option to purchase New Albertsons common stock outstanding immediately before the effective time that is not held by an employee of New Albertsons immediately before the effective time will be converted into the right to receive an amount of cash equal to the excess (if any) over the exercise price of such option the sum of (a) 0.182 times the average closing per share price of Supervalu common stock as reported on the NYSE composite transactions reports on the ten trading days immediately preceding the closing date plus (b) $20.35. However, non-employee directors of New Albertsons will receive in Supervalu common stock instead of cash a percentage of this payment equivalent to the percentage of the per-share merger consideration represented by Supervalu stock.

Each option to purchase New Albertsons common stock outstanding immediately before the effective time that is held by a person who is an employee of New Albertsons immediately before the effective time will be assumed by Supervalu and converted into an option to acquire a number of shares of Supervalu common stock equal to the product of (a) the number of shares of New Albertsons common stock subject to such option immediately prior to the effective time multiplied by (b) the sum of 0.182 and a fraction, the numerator of which is $20.35 and the denominator of which is the average closing per share price of Supervalu common stock as reported on the NYSE composite transactions reports on the ten trading days immediately preceding the closing date. The exercise price per share of Supervalu common stock subject to any such converted option will be an amount equal to (a) the exercise price per share of New Albertsons common stock subject to such option immediately prior to the effective time divided by (b) the sum of (i) 0.182 plus (ii) the quotient obtained by dividing $20.35 by the average closing per share price of Supervalu common stock as reported on the NYSE composite transactions reports on the ten trading days immediately preceding the closing date.

Each right to receive Albertsons common stock pursuant to a stock unit award under any Albertsons stock plan outstanding immediately prior to the reorganization merger will become the right to receive a number of shares of New Albertsons common stock equal to the number of shares of Albertsons stock such stock unit award entitled the holder to receive prior to the initial effective time. Each stock unit award outstanding immediately prior to the effective time (other than stock units granted after the date of the agreement) will, as of the effective time, accelerate and become immediately vested and will entitle the holder to receive, at the time permitted by Section 409A of the Code, the per share merger consideration received by holders of New Albertsons stock as a result of the Supervalu merger.

Fractional Shares

No fractional shares of Supervalu common stock will be issued in the Supervalu merger. Instead, holders who would otherwise be entitled to receive a fractional share of Supervalu common stock will be entitled to receive an amount in cash (without interest) determined by multiplying the fractional share interest by the average closing price for a share of Supervalu common stock as reported on the NYSE composite transactions reports for the ten trading days prior to, but not including, the closing date of the Supervalu merger.

Dissenters’ Shares

If the charter amendment is adopted and becomes effective, and the Supervalu merger occurs, shares of Albertsons common stock held by any Albertsons stockholder that properly demands appraisal of its shares in

 

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connection with the reorganization merger in compliance with Section 262 of the DGCL will not be converted into the right to receive New Albertsons common stock, but rather will be entitled to payment as further described above under “The Mergers—Appraisal Rights of Albertsons Stockholders” beginning on page 92. However, if any Albertsons stockholder withdraws his or her demand for appraisal (in accordance with Section 262 of the DGCL), or is or becomes ineligible for appraisal, then that Albertsons stockholder will not be paid in accordance with Section 262 of the DGCL, and the shares of Albertsons common stock held by that Albertsons stockholder will be deemed to have been converted into New Albertsons common stock as of the initial effective time.

No appraisal rights will be available to holders of New Albertsons common stock in connection with the Supervalu merger.

Exchange of Shares

From and after the initial effective time, each stock certificate that immediately before the initial effective time represented shares of Albertsons common stock (other than shares held by any dissenting Albertsons stockholder who has properly exercised appraisal rights in accordance with Delaware law as described above) will be deemed to represent the same number of shares of New Albertsons common stock. Following the initial effective time, no further registrations of transfers of the shares of Albertsons common stock that were outstanding prior to the initial effective time will be made on the stock transfer books of Albertsons. Albertsons stockholders will not receive new certificates to represent their shares of New Albertsons common stock received in the reorganization merger.

Supervalu has entered into an agreement with Wells Fargo Bank, N.A. as paying agent for the merger to handle the exchange of shares of New Albertsons common stock for the merger consideration, including the payment of cash for fractional shares. As of the effective time, Supervalu will deposit with the paying agent, for the benefit of the holders of New Albertsons common stock, cash and certificates representing the shares of Supervalu common stock issuable in the Supervalu merger in exchange for outstanding shares of New Albertsons common stock, including any cash to be paid in lieu of fractional shares or in respect of any dividends or distributions on shares of Supervalu common stock with a record date after the effective time.

At the effective time, each certificate representing shares of New Albertsons common stock that has not been surrendered will represent only the right to receive upon surrender of that certificate the merger consideration, dividends and other distributions on shares of Supervalu common stock with a record date after the effective time and cash, without interest, in lieu of fractional shares. Following the effective time, no further registrations of transfers of the shares of New Albertsons common stock that were outstanding prior to the effective time will be made on the stock transfer books of the surviving company. If, after the effective time, New Albertsons stock certificates are presented to Supervalu, New Albertsons (as the surviving company in the Supervalu merger) or the paying agent for any reason, they will be cancelled and exchanged as described above.

Exchange Procedures

Promptly after the effective time, the paying agent will mail to each holder of record of New Albertsons shares whose shares of New Albertsons common stock were converted into the right to receive the merger consideration a letter of transmittal and instructions explaining how to surrender New Albertsons stock certificates in exchange for the merger consideration.

After the effective time, upon surrender of a New Albertsons stock certificate to the paying agent, together with a letter of transmittal, duly executed, and other documents as may reasonably be required by the paying agent, the holder of the New Albertsons stock certificate will be entitled to receive the merger consideration, dividends and other distributions on shares of Supervalu common stock with a record date after the effective time

 

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and cash, without interest, in lieu of fractional shares, and the New Albertsons stock certificate surrendered will be cancelled. The paying agent may withhold from the sum payable to any person any amounts that the paying agent or New Albertsons may be required to withhold under applicable tax laws.

Albertsons stock certificates should not be returned with the enclosed proxy card(s). Albertsons stock certificates (which after the initial effective time will represent shares of New Albertsons) should be returned only with a validly executed transmittal letter and accompanying instructions that will be provided to Albertsons stockholders following the effective time.

Transfers of Ownership and Lost Stock Certificates

If payment is to be made in respect of New Albertsons shares to a person other than the registered stockholder, then it is a condition of payment that the stock certificates have been properly endorsed or are otherwise in proper form for transfer and that the person surrendering the certificates:

 

    pays any transfer or other taxes required because the payment is made to a person other than the registered holder of the New Albertsons stock certificate; or

 

    establishes to the satisfaction of the paying agent that any transfer or other taxes described above have been paid or are not applicable.

If any Albertsons stock certificate has been lost, stolen or destroyed, upon the stockholder’s compliance with reasonable replacement requirements established by the paying agent, the paying agent will issue, in exchange for such lost, stolen or destroyed stock certificate, the merger consideration, dividends and other distributions on shares of Supervalu common stock with a record date after the effective time and cash, without interest, in lieu of fractional shares.

Termination of Exchange Fund

At any time after six months after the effective time, Supervalu may require the paying agent to deliver to Supervalu all cash and shares of Supervalu common stock remaining in the exchange fund. Thereafter, New Albertsons stockholders must look only to Supervalu for payment of the merger consideration with respect to their shares of New Albertsons common stock.

Limitation on Liability

None of Supervalu, New Albertsons (as the surviving company in the Supervalu merger) or the paying agent will be liable to any person in respect of any merger consideration that is properly delivered to a public official pursuant to any applicable abandoned property, escheat or similar law.

Representations and Warranties

The merger agreement contains representations and warranties made by Albertsons, on the one hand, and Supervalu and Acquisition Sub, on the other hand, to each other. These representations and warranties are qualified in their entirety by certain information that Supervalu and Albertsons have filed with the SEC prior to the date of the merger agreement (which filings are available without charge at the SEC’s Web site, www.sec.gov), as well as by disclosure letters Albertsons and Supervalu delivered to each other immediately prior to signing the merger agreement. These representations and warranties relate to, among other things:

 

    due organization, good standing and the requisite corporate power and authority to carry on their respective businesses;

 

    corporate power and authority to enter into the transaction agreements, due execution, delivery and enforceability of the transaction agreements and approval of the board of directors;

 

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    absence of conflicts with charter documents, breaches of certain contracts and agreements, and violations of applicable law resulting from the execution and delivery of the transaction agreements or the closing of the transactions;

 

    absence of governmental consent requirements in connection with execution and delivery of the transaction agreements or the closing of the transactions;

 

    capital structure and equity securities;

 

    timeliness and accuracy of SEC filings, sufficiency of systems of internal control over financial reporting, and absence of material complaints regarding auditing or accounting practices or internal controls;

 

    material compliance of financial statements as to form with applicable accounting requirements and SEC rules and regulations and preparation in accordance with U.S. generally accepted accounting principles, or “GAAP”;

 

    absence of undisclosed liabilities;

 

    absence of specified changes or events and conduct of business in the ordinary course since a specified date;

 

    compliance with applicable laws and holding of all necessary permits;

 

    absence of material litigation;

 

    receipt of a fairness opinion from each company’s financial advisors; and

 

    brokers’ or finders’ fees.

Albertsons made additional representations and warranties to Supervalu, including with respect to:

 

    Albertsons’ subsidiaries;

 

    the accuracy of certain financial statements of the core business, non-core business and standalone drug business included in Albertsons’ disclosure letter;

 

    material contracts;

 

    employee benefits matters and ERISA compliance;

 

    labor matters and compliance with collective bargaining agreements;

 

    owned and leased real properties;

 

    tangible personal property;

 

    intellectual property and information technology systems;

 

    environmental matters and compliance with environmental laws;

 

    tax matters;

 

    insurance;

 

    Albertsons’ rights plan;

 

    Albertsons’ 7.25% Corporate Units;

 

    absence of affiliate transactions; and

 

    inapplicability of state takeover statutes.

Supervalu and Acquisition Sub made additional representations and warranties to Albertsons in the merger agreement, including with respect to:

 

    financing arrangements and availability of funds sufficient to consummate the Supervalu merger;

 

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    due incorporation and lack of business operations of Acquisition Sub;

 

    sale of certain of Supervalu’s Cub food stores in Chicago and Bloomington, Illinois; and

 

    lack of status as an interested stockholder of Albertsons under Delaware law.

The representations and warranties contained in the merger agreement will not survive the effective time, but they form the basis of specified conditions to the parties’ obligations to complete the mergers.

Covenants and Agreements

Operating Covenants

Albertsons has agreed that during the time period between the execution of the merger agreement and the effective time, it and its subsidiaries will carry on the core business in the ordinary course, consistent with past practice. With specified exceptions, including compliance with applicable law, Albertsons has agreed, among other things, not to (in each case to the extent that any of the following actions or omissions would relate to or affect the core business or any of the entities being acquired by Supervalu in a non–de minimis respect):

 

    amend its certificate of incorporation or by-laws;

 

    issue, authorize the issuance of, transfer, or dispose of any shares of its capital stock, any other voting securities or any securities convertible into, or any rights, warrants or options to acquire, any such shares, voting securities or convertible securities, other than in connection with certain specified securities;

 

    declare, set aside or pay any dividends on, or make any other distributions in respect of, any of its capital stock, except, among other things, for quarterly cash dividends not in excess of $0.19 per share, and any dividends or contract payments required under certain specified securities;

 

    split, combine, reclassify, redeem, purchase or otherwise acquire any equity interest of Albertsons or its subsidiaries or any rights, warrants or options to acquire any such equity interest;

 

    acquire, lease or license from any person, or sell, dispose of, abandon, or lease or license to any business organization, any equity interests or any material assets, other than in the ordinary course of business;

 

    enter into any material joint venture or partnership agreement;

 

    incur, guarantee or materially modify any indebtedness or make any loans, capital expenditures or investments in any person, other than in the ordinary course of business consistent with past practice;

 

    enter into, renew, terminate or materially amend any material contract or lease or contract involving certain kinds of advance payments;

 

    authorize or commit to make any capital expenditure in excess of Albertsons capital expenditure budget or in excess of certain thresholds;

 

   

unless required under one of its benefit plans or by applicable law, (i) increase or decrease compensation or benefits of, or pay any bonus to, any current or former employee, director or consultant (other than in the ordinary course of business consistent with past practice), (ii) grant any severance or termination pay (other than in the ordinary course of business consistent with past practice), (iii) grant any equity or equity-based award or accelerate vesting, payment, compensation or benefit under any benefit plan, (iv) except as required by GAAP, materially change any actuarial assumption used to calculate funding obligations under its benefit plans, (v) enter into any employment agreement with present employees or any consulting agreement with present directors or executive officers or, except in the ordinary course of business consistent with past practice, enter into any consulting agreement or change of control or severance agreement with any present employee, (vi) adopt, amend or terminate any benefit plan, (vii) enter into, renew or materially amend certain types of collective bargaining agreements, or (viii) subject to a limited exception permitting the funding of a trust to pay potential severance and

 

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similar obligations in an amount not to exceed $50 million and an exception permitting the funding of a trust to satisfy obligations under the stock unit awards, provide funding to any rabbi trust or similar arrangement;

 

    enter into certain transactions with affiliates;

 

    make any material tax election (in a manner inconsistent with past practices), change any method of accounting or make any election with respect to Albertsons or any subsidiary of Albertsons under Treasury Regulation Section 301.7701-3, enter into any settlement or compromise of any material tax liability for an amount in excess of the amount reserved for such tax liability in Albertsons’ financial statements, change any annual tax accounting period, enter into any closing agreement relating to any material tax or surrender any right to claim a material tax refund;

 

    make any changes in accounting policies other than as required by GAAP or a governmental authority;

 

    amend, terminate or fail to enforce its rights agreement or any standstill or confidentiality agreement;

 

    settle any litigation for more than $2.5 million (net of any insurance proceeds received in respect of that litigation and net of any amount reserved for that litigation in Albertsons’ most recent financial statements);

 

    enter into any internal restructuring, merger, intercompany transfer of assets or assumption of liabilities or changes in intercompany debts or liabilities;

 

    cause any of its subsidiaries that is a captive insurance company to underwrite any insurance that does not relate to the core business;

 

    incur capital expenditures in respect of the non-core business in amounts greater or less than a specified capital expenditures budget for the non-core business; or

 

    agree to take any of the above actions.

Supervalu has agreed that, prior to the effective time, it and its subsidiaries will carry on their businesses in the ordinary course consistent with past practice. With specified exceptions, Supervalu has agreed, among other things, not to:

 

    amend its certificate of incorporation or by-laws;

 

    declare, set aside or pay any dividends on, or make any other distributions in respect of, any of its capital stock, except, among other things, for quarterly cash dividends not in excess of a specified limit;

 

    split, combine, reclassify, redeem, purchase or otherwise acquire any of its shares or any rights, warrants or options to acquire any of its shares;

 

    except for transactions that would not materially impair or delay the closing of the transactions, and except for transactions in the ordinary course of business:

 

    acquire, lease or license from any person, or sell, dispose of, abandon, lease or license to any business organization, any equity interests therein or any material assets;

 

    incur or materially modify any indebtedness or make any loans, other than in the ordinary course of business consistent with past practice; or

 

    enter into, renew, terminate or materially amend any material contract or lease;

 

    enter into certain transactions with affiliates;

 

    make any changes in accounting policies other than as required by GAAP or a governmental authority; or

 

    agree to take any of the above actions.

 

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Albertsons has also agreed not to waive or modify any term of the standalone drug sale agreement without the consent of Supervalu, if such modification or waiver would reasonably be expected to adversely affect Supervalu or the ability to consummate the transactions.

No Solicitation

Each of Albertsons and Supervalu has agreed not to, and has agreed to direct its directors, officers and other representatives not to, directly or indirectly initiate, solicit or knowingly encourage or facilitate any inquiries or the making of an “acquisition proposal.” An acquisition proposal, with respect to Albertsons or Supervalu, means any proposal or offer with respect to a tender offer or exchange offer, merger, reorganization, share exchange or other business combination or other offer or proposal from any person to acquire in any manner, 20% or more of its equity interests, or assets, securities or ownership interests representing 20% or more of the consolidated assets, revenues or earnings of Albertsons and its subsidiaries or Supervalu and its subsidiaries, as the case may be (other than the transactions).

In addition, each of Albertsons and Supervalu has agreed that, except as otherwise expressly permitted in the merger agreement, it will not, and will not permit its directors, officers and other representatives to, directly or indirectly:

 

    engage in any discussions or negotiations regarding, or provide to any person any confidential information relating to any acquisition proposal; or

 

    enter into any agreement, understanding or arrangement with respect to any acquisition proposal.

In addition, Albertsons and Supervalu have agreed that neither they nor their respective boards of directors (nor any committees of their boards of directors) will recommend to their respective stockholders, or approve any agreement with respect to, an acquisition proposal other than the transactions.

Notwithstanding the above restrictions, the boards of directors of each of Albertsons and Supervalu are permitted to take and disclose to stockholders positions in response to acquisition proposals to the extent required under applicable securities laws. In addition, under certain circumstances each of Albertsons and Supervalu and their respective boards of directors may:

 

    take and disclose to their respective stockholders positions with respect to an acquisition proposal;

 

    provide access to their respective properties, books and records and other information to a person who has made a bona fide, unsolicited acquisition proposal and who has signed a confidentiality agreement; and

 

    participate in discussions or negotiations with the person making the bona fide, unsolicited acquisition proposal.

Before taking any of the steps described in the preceding paragraph (other than taking and disclosing to stockholders positions in response to acquisition proposals to the extent required under applicable securities laws to the extent that the positions are not adverse to the other party), the board of directors of Albertsons or Supervalu, as the case may be, must determine in good faith that the relevant acquisition proposal is, or is reasonably likely to result in, a superior proposal (in the case of an acquisition proposal to acquire some or all of Albertsons) or a qualifying proposal (in the case of an acquisition proposal to acquire some or all of Supervalu).

A “superior proposal” is an acquisition proposal to acquire 50% or more of the equity interests, or assets, securities or ownership interests representing 50% or more of the consolidated assets, revenues or earnings of Albertsons and its subsidiaries that the Albertsons board of directors determines in good faith is reasonably capable of being completed and which, if completed, would result in a transaction more favorable to Albertsons stockholders from a financial point of view than the transactions.

 

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A “qualifying proposal” is an acquisition proposal relating to the acquisition of, or a business combination transaction with, Supervalu, any of its subsidiaries or some or all of their respective assets, securities or other ownership interests and that contemplates, and would not materially delay, the consummation of the transactions and that is not otherwise inconsistent with the provisions of the transaction agreements.

If either Albertsons or Supervalu determines in good faith, in response to an acquisition proposal, that the proposal is a superior proposal (in the case of Albertsons) or a qualifying proposal (in the case of Supervalu), Albertsons or Supervalu, as the case may be, is required to notify the other party in writing promptly following that determination. In certain circumstances, Albertsons or Supervalu may then approve or recommend the superior proposal or qualifying proposal, as the case may be, to its stockholders, may enter into an agreement relating to such proposal and Albertsons may terminate the merger agreement. Albertsons may recommend the superior proposal or enter into an agreement relating to the superior proposal only if it has given Supervalu at least two business days notice of its intention to do so, Albertsons’ board has considered in good faith any changes to the merger agreement proposed by Supervalu, and the Albertsons board of directors has determined in good faith, after consultation with its outside legal counsel, that failure to make such recommendation would be inconsistent with its fiduciary duties. If Albertsons desires to enter into a definitive agreement providing for a superior proposal, it must terminate the merger agreement and pay the applicable termination fee to Supervalu.

Each of Albertsons and Supervalu has agreed to promptly notify the other party of the receipt of any acquisition proposal (and in no event later than 48 hours after receiving an acquisition proposal) and to keep the other party reasonably informed of the status and material terms and conditions of any proposals or offers.

Notwithstanding the restrictions above, the board of directors of each of Albertsons and Supervalu may withdraw, modify, or change in a manner adverse to the other party all or any portion of its board recommendation if it determines in good faith, after consultation with outside counsel, that failing to do so would be inconsistent with its fiduciary duties under applicable law. However, such a withdrawal, modification, or change of either party’s board recommendation will give the other party a right to terminate the merger agreement as described below under “—Termination of the Merger Agreement,” and may result in the payment of a termination fee as described below under “—Termination Fees.”

Access to Information; Confidentiality

Supervalu and Albertsons have agreed that, during the period prior to the effective time, they will, and will cause each of their subsidiaries to, afford to the other party and its representatives reasonable access during normal business hours to all of their respective properties, books, contracts, commitments, personnel and records, except that neither party is required to provide the other with any information that it reasonably believes it cannot provide due to contractual restrictions or legal restrictions, or which it believes is competitively sensitive information. The