Supervalu and dissident shareholder Blackwells Capital first locked horns more than a year ago and the relationship between them has only deteriorated since, a new proxy statement filed by the wholesaler reveals.
Most recently, Blackwells has demanded the wholesaler provide details of the use of its corporate jet and its screening process for board members. Previously, the proxy said, Blackwells Managing Partner Jason Aintabi proposed buying Supervalu’s retail stores for free and suggested that despite a lack of experience in retail he could operate them. The parties have also sparred over settlement of Blackwells’ proxy fight, with the investor refusing to allow its candidates to be interviewed before settlement terms are agreed on and the company refusing to consider board members it hadn’t interviewed.
These details were revealed as part of the proxy statement filed by the wholesaler in advance of its annual meeting, during which shareholders will consider whether to elect a slate of directors proposed by Blackwells. The hedge fund has been highly critical of the company and its board since it went public with its campaign in October. Supervalu has been guarded in its responses to the allegations until now beyond saying its existing strategic plan was already in the process of addressing many of the issues Blackwells has forwarded as its own strategic plan. The filing also downplays the actual holdings of the shareholder, saying that nearly 3% of Blackwell’s reported 7.3% ownership is in the form of underlying call options.
Supervalu officials and Blackwells representatives have been in talks going back to last May when Abie Shamah, a portfolio manager at Blackwells, telephoned Investor Relations VP Steven Bloomquist saying the fund was interested in investing in Supervalu. Shamah and Supervalu executives had subsequent interactions over the course of the summer. However, the company was surprised when Blackwells went public with a campaign built around addressing Supervalu’s historical stock underperformance and proposing its own strategic plan that among other things advocated the company seek potential mergers with other wholesalers.
In December, Supervalu officials and Blackwells representatives met in New York when Aintabi first proposed that Blackwells acquire Supervalu’s retail units or be designated the first bidder in an auction process. In a subsequent meeting in Minnesota in January, Aintabi offered that Blackwells would “pay nothing” for its retail operations despite Supervalu having just reported the units generated $74 million of adjusted EBITDA through the fiscal third quarter.
“We noted that our retail business would need to be sufficiently capitalized and purchased and led by someone with at least some grocery or retail experience given our retail business would be a significant customer of our wholesale business,” the statement continued. “Mr. Aintabi suggested he might be such a leader despite his lack of industry experience.”
Blackwells had also proposed running a slate of three candidates including Aintabi to the Supervalu board at that meeting and proposed creation of a Strategic Review Committee, which would be overseen by Blackwells representatives.
When Supervalu subsequently suggested the investor nominate more qualified candidates to the board, Blackwells responded by submitting a revised slate of six candidates. Subsequent talks on a settlement dissolved as Supervalu informed the investor it would consider two of its candidates provided it could vet them as it would other candidates. Blackwells however declined to make its candidates available to be interviewed by the company without first having discussed terms of a settlement.
The company and Blackwells have also butted heads several times on whether the investor was entitled to inspect records that go beyond the publicly disclosed information regarding use of its corporate jet and its vetting processes for board members. Supervalu in the proxy said the investor “failed to establish its entitlement to the records,” but said it would discuss producing a targeted set of records for Blackwells’ review.
Blackwells’ argument is rooted in consistent stock underperformance although a majority of the 15-year period it references predates CEO Mark Gross’ arrival in 2016. Supervalu had previously struggled through a failed transition to retailing as owner of the American Stores portfolio and struggled to monetize its discount Save-A-Lot format and made numerous leadership changes. Blackwells noted, however, that Supervalu’s stock was recently trading near six-year lows and had appreciated since making its grievances public last year.
Blackwells has called for Supervalu to execute sale-leasebacks of its warehouses; to spin off or sell retail stores; to buy back its stock and to explore selling itself to another wholesaler.