ACQUISITIONS ACQUISITIONS

6 Months Ended

Feb. 01, 2020

NOTE 4—ACQUISITIONS

Supervalu Acquisition

On July 25, 2018, the Company entered into an agreement and plan of merger to acquire all of the outstanding equity securities of Supervalu, which was then the largest publicly traded conventional grocery distributor in the United States. The acquisition of Supervalu diversifies the Company’s customer base, further enables cross-selling opportunities, expands market reach and scale, enhances technology, capacity and systems, and is expected to deliver significant synergies and accelerate potential growth. The merger was completed on October 22, 2018 (the “Closing Date”). At the effective time of the acquisition, each share of Supervalu common stock, par value $0.01 per share, issued and outstanding, was canceled and converted into the right to receive a cash payment equal to $32.50 per share, without interest. Total consideration related to this acquisition was $2.3 billion, $1.3 billion of which was paid in cash to Supervalu shareholders and $1.0 billion of which was used to satisfy Supervalu’s outstanding debt obligations. Included in the liabilities assumed in the Supervalu acquisition were the Supervalu Senior Notes with a fair value of $546.6 million. These Senior Notes were redeemed in the second quarter of fiscal 2019 following the required 30-day notice period, resulting in their satisfaction and discharge.

The assets and liabilities of Supervalu were recorded in the Company’s Consolidated Financial Statements on a preliminary basis at their estimated fair values as of the acquisition date. In conjunction with the Supervalu acquisition, the Company announced its plan to sell the remaining acquired retail operations of Supervalu. Refer to Note 18—Discontinued Operations for more information on discontinued operations.

The following table summarizes the final consideration, fair value of assets acquired and liabilities assumed, and the resulting goodwill.



(in thousands)	Final Acquisition Date Fair Values
Consideration:
Outstanding shares	$	1,258,450
Outstanding debt, excluding acquired senior notes	1,046,170
Equity-based awards	18,411
Total consideration	$	2,323,031

Fair value of assets acquired and liabilities assumed:
Cash and cash equivalents	$	25,102
Accounts receivable	552,381
Inventories	1,156,781
Prepaid expenses and other current assets	112,449
Current assets of discontinued operations	196,848
Property, plant and equipment	1,207,115
Goodwill	376,181
Intangible assets	918,103
Other assets	77,008
Long-term assets of discontinued operations	433,839
Accounts payable	(974,252		)
Current portion of long-term debt and finance lease obligations	(579,565		)
Other current liabilities	(331,693		)
Current liabilities of discontinued operations	(148,763		)
Long-term debt	(34,355		)
Long-term finance lease obligations	(103,289		)
Pension and other postretirement benefit obligations	(234,324		)
Deferred income taxes	(18,254		)
Other long-term liabilities	(308,516		)
Long-term liabilities of discontinued operations	(1,398		)
Noncontrolling interests	1,633
Total consideration	2,323,031
Less: Cash and cash equivalents⁽¹⁾	(30,596		)
Total consideration, net of cash and cash equivalents acquired	$	2,292,435


(1)	Includes cash and cash equivalents acquired attributable to continuing operations and discontinued operations.

Goodwill represents the future economic benefits arising largely from the synergies expected from combining the operations of the Company and Supervalu that could not be individually identified and separately recognized. A substantial portion of goodwill is deductible for income tax purposes. Goodwill from the acquisition was attributed to the Company’s Supervalu Wholesale reporting unit and the legacy Company Wholesale reporting unit, which in the first quarter of fiscal 2020 was reorganized into a single U.S. Wholesale reporting unit, as discussed further in Note 6—Goodwill and Intangible Assets. No goodwill was attributed to the Company’s Retail reporting unit within discontinued operations.

During the first quarter of fiscal 2020, the Company finalized its fair value estimates of its net assets, primarily by completing income tax returns and reviews of carrying values of other assets and liabilities. There were no material changes to preliminary amounts previously reported.

The following table summarizes the identifiable intangible assets and liabilities recorded based on final valuations. The identifiable intangible assets are expected to be amortized on a straight-line basis over the estimated useful lives indicated. The fair value of identifiable intangible assets acquired was determined using income approaches. Significant assumptions utilized in the income approach were based on Company-specific information and projections, which are not observable in the market and are thus considered Level 3 measurements as defined by authoritative guidance.



		Final Acquisition Date Fair Values
(in thousands)	Estimated Useful Life	Continuing Operations			Discontinued Operations
Customer relationship assets	10–17 years	$	810,000		$	—
Favorable operating leases	1-19 years	21,629			—
Leases in place	1-8 years	10,474			—
Tradenames	2-9 years	66,000			17,000
Pharmacy prescription files	5-7 years	—			45,900
Non-compete agreement	2 years	10,000			—
Unfavorable operating leases	1-12 years	(21,754		)	—
Total		$	896,349		$	62,900

The Company incurred acquisition-related costs in conjunction with the Supervalu acquisition, which are quantified in Note 5—Restructuring, Acquisition and Integration Related Expenses.

The accompanying Condensed Consolidated Statements of Operations include the results of operations of Supervalu from October 22, 2018. Supervalu’s net sales from discontinued operations for this time period are reported in Note 18—Discontinued Operations.

The following table presents unaudited supplemental pro forma consolidated Net sales and Net loss from continuing operations based on the Company’s historical reporting periods as if the acquisition of Supervalu had occurred as of July 30, 2017:



	13-Week Period Ended			26-Week Period Ended
(in thousands, except per share data)	January 27, 2018⁽²⁾			January 26, 2019⁽¹⁾			January 27, 2018⁽²⁾
Net sales	$	6,159,106		$	12,134,176		$	12,056,161
Net loss from continuing operations	$	(25,388	)	$	(411,196	)	$	(34,349	)
Basic net loss continuing operations per share	$	(0.50	)	$	(8.11	)	$	(0.68	)
Diluted net loss from continuing operations per share	$	(0.50	)	$	(8.11	)	$	(0.68	)


(1)	Includes 12 weeks of pro forma Supervalu results for the period ended September 8, 2018.


(2)	Includes 13 and 26 weeks of pro forma Supervalu results for the period ended December 2, 2017 and 6 and 19 weeks of pro forma Associated Grocers of Florida, Inc. results for the period ended November 4, 2017, which was acquired by Supervalu on December 8, 2017.

These unaudited pro forma results are presented for informational purposes only and are not necessarily indicative of what the actual results of operations of the combined companies would have been had the acquisitions occurred at the beginning of the periods being presented, nor are they indicative of future results of operations.