By Lauren Hirsch and Greg Roumeliotis
(Reuters) - Grocery distributor Supervalu Inc is preparing to explore an outright sale as an alternative to a spin-off of its discount grocery retail chain Save-A-Lot, according to people familiar with the matter.
Eden Prairie, Minnesota based Supervalu has received interest in Save-A-Lot from several private equity firms, and has told them that it will consider offers once it registers the unit with regulators for a spin in early 2016, the sources said this week.
While a spin would be more tax-efficient for Supervalu, private equity firms are hoping to take advantage of a so-called tax shield resulting from a loss in Supervalu's $3.3 billion (£2.17 billion) sale of supermarket retailer Albertsons Inc and other stores to Cerberus Capital Management LP in 2013, the people added.
Buyout firms would still have to convince the company, however, that their offers would represent better value to Supervalu shareholders compared to a spin, the people said. Save-A-Lot could be valued at more than $1.7 billion, some of the people added.
The sources asked not to be identified because the deliberations are confidential. Supervalu did not respond to a request for comment.
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Supervalu announced in July it was exploring a spin-off of Save-A-Lot to insulate the fast-growing unit from its slower-growing grocery wholesale and food retail businesses. The company had also expected the spin to take advantage of discount stores' typically high public market valuations.
Still, even discount stores have been knocked down by the recent stock market volatility. Peer Dollar Tree Inc , which was trading at around $80 a share in August, now trades around $68 a share. The market jitters could affect valuation of Save-A-Lot spin, now estimated at around $1.76 billion, the sources said.
Save-A-Lot licenses nearly 70 percent of its approximately 1,334 stores. The model helps the company scale quickly, though it can be difficult to manage centrally.
(Reporting by Lauren Hirsch and Greg Roumeliotis in New York; Editing by Nick Zieminski)