Summary
UNFI makes a rather surprising deal as it is buying SuperValu.
The promise is that increased scale, cross-selling opportunities, a low value and synergies should make the deal worthwhile.
The deal can be questioned as well, as SuperValu is more troubled, UNFI will take on a lot of debt, while the industry sees rapid changes.
This deal increases the odds of both downside and upside scenarios a lot in the coming years in my opinion, yet short dated option markets prevent me from positioning myself to benefit from this.
This idea was discussed in more depth with members of my private investing community, Value In Corporate Events.
United Natural Foods (UNFI) is a stock which has been on my radar on several occasions in recent years. For a long time, the story looked rosy as the company operates as a wholesale distributor for the natural and organic food industry in North America.
Growing demand and bolt-on dealmaking made the stock a great investment coming out of the crisis, as shares rose from $15 during the crisis to a high of $80 in early 2015. Since then, shares have lost more than half of their value amidst slower growth, margin pressure and bolt-on deals no longer delivering the same value as they had done in the past. The acquisition of Whole Foods (a key client) by Amazon (NASDAQ:AMZN) resulted in fears of losing this account, or else accept lower margins.
