REITS, Private-Equity and Real-estate Investors who Control Acme parent Albertsons is Super Wealthy due to Lockdown and Coronavirus

The owners of Acme supermarkets is newly wealthy from coronavirus-lockdown sales that have sent restaurant patrons running to the local grocer, according to its latest filing with the Securities and Exchange Commission.

And the extra sales and profits couldn’t have come along at a better time,as far as its owners are concerned.

The owners, private-equity and real-estate investors who control Acme parent Albertsons, have run up billions in debt acquiring grocery chains over the past decade. They have already tried a couple of times to sell their shares on the stock market and get their money out.

After negotiating revised pension payments with UFCW locals in Philadelphia and other cities, the company announced one more attempt at going public in early March, just before lockdowns shut restaurants, hotels and cafeterias and sent tens of millions of masked consumers into stores as they prepared to cook more at home.

And suddenly the chain looks more attractive:

According to a filing with the SEC last week, Albertsons in March boosted sales at existing stores were by more than one-third for the combined months of March and April over last year’s sales. Before coronavirus, sales averaged $5 billion a month.

Albertsons hired 55,000 new workers and boosted pay for “front-line associates” by $2 an hour to help handle the extra sales. And profits are way up, permitting the company, heavily indebted under its private-equity owners, to boost its cash levels to $4 billion, and cut its once-towering debt to $6.7 billion, from $8 billion just three months ago.

As one of the Big Three grocers (alongside the Kroger chains and Walmart), Acme’s buying power has kept shelves relatively full at a time of spot shortages as the nation’s farm-to-table supply chains adjust.

“Since the onset of the coronavirus (COVID-19) pandemic,” the company said, “we have gained market share across the majority of our markets. We believe that our competitive position will continue to strengthen as a result of customer receptiveness to our response to the challenges of the coronavirus pandemic and the strength of our supply chain.”

The jump has also boosted the chain’s Drive Up & Go delivery service and online ordering.

This can’t last forever, Albertsons warns later in the SEC report: “It is too early to predict the permanent impact the coronavirus (COVID-19) pandemic will have on our industry or food-at-home consumption or what the impact on sales will be going forward.”

None of the proceeds will go to the supermarkets, but rather to the investors, led by Kimco Realty Corp., and including Philadelphia-based Lubert-Adler.

Albertsons has “really performed extremely well,” Raymond Edwards, head of retail at Kimco, told investors in a conference call last week. “They feel they’re in a great position” for the share sale, which would make Albertsons a public company, he added.

Still, Edwards concluded, it’s up to the stock market. Will investor pay a premium for Albertsons now? He’s waiting for investment bankers to say it’s time. Until then, store management “are really focused now on running the business. And it’s much more complicated today for them, than it was two months ago.”

Foreign mail

Once Vanguard Group had a big mail and online operation in Malvern. No more.

A source familiar with the company’s operations told me Vanguard postage that used to flow by the ton through that complex is now routing to Swiss Post Solutions — an arm of Switzerland’s highly entrepreneurial national post office — in El Paso, Texas, where Swiss Post built a giant private mail-handling facility in 2017.

Dana S. Grosser, Vanguard’s head of corporate public relations, confirmed the change:.“As client preferences continue to shift from paper mail to digital interactions, Vanguard decided in July 2019 to begin partnering with Swiss Post Solutions (SPS) to manage the processing of Vanguard’s incoming client mail,” she told me in an email.

The deal adds “enhanced resiliency into our mail and scanning operations,” she added. “Vanguard has long used strategic partnerships and vendor relationships to increase efficiency, decrease costs, or bring in new capabilities to benefit our clients.”

The company won’t say how many Malvern jobs have been eliminated or what happens to the people (Crew, as Vanguard called them) that used to handle the mail. (Full disclosure: I was a teenaged Vanguard mail-handling temp at the company’s old Chesterbrook offices way back in the summer of 1982.)

Settled?

Back in 2014, I wrote about Vanguard Group’s ex-tax lawyer David Danon, who had turned whistleblower, asserting the Malvern investment giant had systematically underpaid its federal and state income taxes for years by underpricing its own investment services to its mutual funds, and by stashing more than $1 billion in a special “reserve” that was neither distributed to fund owners, nor paid forward as taxable income.

Talking to Danon’s attorneys and other observers, I reported the next year that Vanguard had started to list unpaid liabilities for management services and other expenses at its funds, disclosing a pile of cash that looked a lot like Danon’s “reserve.”

Dan Wiener, investment manager and longtime publisher of the Independent Adviser for Vanguard Investors newsletter, was especially curious about that reserve. He has lately run the numbers, and he reports Vanguard has reduced its unpaid fund liabilities, from $1.8 billion in 2015-16, to less than $800 million in 2018-19.

I ran that by a couple of tax lawyers, who say that’s the kind of reduction that tends to follow tax agreements, though it’s hard to know exactly what the private, for-profit company is up to if it doesn’t want to explain. Vanguard declined to comment.

Not enough?

The pending sale of New Hope-based social-media and video-messaging app owner Meet Group to eHarmony owner and TV programmer ProSieben, of Germany, has disappointed shareholders such as Dan Mobbs, of Colts Neck, N.J.

Mobbs notes that law firms for investors have inquired the fairness of the $6.30 per share sale anounced in December and subject to a shareholder vote next month. (Founder and CEO Geoff Cook stands to collect $12 million in stock and cash as severance pay; he also owns shares worth $13 million at the sale price.)

Mobb points out that the $500 million sale price is not much more than twice this year’s sales; a growing social media company ought to get closer to four times revenues, he figures. The vote is scheduled for June 11.