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In an internal circulated to Albertsons employees yesterday, company CEO Larry Johnston wrote the following:

    “Recently, as you know, we announced that our Board of Directors has decided to explore strategic alternatives to improve shareholder value including a possible sale of the company. It would be inappropriate for me to disclose any details in relation to this announcement or discuss the process before the Board of Directors has reached a conclusion. I did, however, want to let you know that this announcement is certainly not an indication that we are throwing in the towel or giving up on the strategic plan that we have focused on so intently for the past four to five years.

    “In fact, just the opposite is true.

    “Your Board of Directors became increasingly convinced that our stock price was too low and that the company was not being properly valued by Wall Street. When you look at the many accomplishments we have made during the first phase of this company turnaround, add in our strong core leadership market positions and also consider the incredible portfolio of assets and real estate that the company owns, it is clear we are undervalued. This is exactly why the Board has launched a process to evaluate the alternatives to increase shareowner value. It has nothing to do with throwing in the towel or being beaten by the competition.

    “Our accomplishments are significant and all of us have a great deal to be proud of. Unfortunately, many of the stories, newspaper articles and financial analyst reports we read are full of innuendos, anecdotes, rumors, and speculation rather than facts.

    “Today, I would like to take the opportunity to set the record straight, to lay out the undisputed facts and to also reflect on some of the accomplishments of our team. To put this in proper perspective requires a little history.

    “In early 2001, our Board decided to bring in a new leadership team to begin turning the company around and start restructuring it for future success. During the first four to five years of this process we have accomplished a great deal. We executed a major consolidation of divisions, delayered the management structure, restructured every functional area in the company, re-engineered our technology backbone, closed hundreds of underperforming stores, exited many underperforming markets and managed through the largest labor dispute in the industry’s history, all while we simultaneously removed $1 billion in expense from the company’s cost structure.

    “Now, here is where the FACTS become important. While we executed all of this difficult first phase restructuring we also were able to outperform our two largest traditional competitors Safeway and Kroger, in the key dimensions of business metrics. During the last three full years since our turnaround began (2002, 2003, 2004) publicly available information shows that Albertsons ranked #1 in cumulative net earnings, #1 in cumulative free cash flow generated and #1 in total sales growth. These are the facts … they are indisputable … and they are indicative of our strong focus on operational excellence. We should all be very proud of what has been achieved.

    “Now another FACT. While this difficult restructuring was being executed, we also remained intently focused on delivering shareowner value through an intent focus on our 5 strategic imperatives. While the industry has been tough and no one has shown great stock price growth in the past five years, Albertsons did fare better than the competition. Once again, despite what you may read, the facts show that over the past five years Albertsons has outperformed the other members of ‘The Big 5 Grocery Retailers,’ Wal-Mart, Kroger, Safeway and Ahold, in stock price appreciation. This is an incredible accomplishment!! Congratulations.

    “Last year we also introduced 10 new strategic initiatives to better support our five strategic imperatives in order to begin setting the stage for the second phase restructuring and transformation of our company. These 10 initiatives will be our focus going forward.

    “One of these initiatives is a further rationalization of our asset portfolio. In the grocery and drug store industries, strong market share is absolutely critical to achieve an acceptable level of return on capital investment. This means that it is very important for us to continue actively managing and monitoring our assets and their competitive positions. In everything we do, we must be focused on taking full advantage of the market leadership positions in our growing and profitable core assets. These core assets are our company’s future.

    “To continue to thrive in today’s competitive landscape, we must always monitor where we are getting an acceptable return on our capital and where we are not. Assets or markets that do not generate an acceptable return on capital investment are destroying shareowner value. And, although these are difficult decisions to make, the truth is, we must always confront reality and quickly pursue the exit of non-core or underperforming markets.

    “We began this process in 2001, and have since closed or sold over 600 underperforming or non-strategic stores and exited nine market areas. This process allows us to increasingly reinvest our capital into core markets where we can grow and achieve a greater return on our investment.

    “As we continue down the strategic path we have been focused on for the past four to five years, we will see the growing and vibrant core of the company emerge. This core will form a smaller yet more profitable company driven by the energy of our associates and the pride that stems from this company’s rich heritage of operational excellence.

    “I hope this review of the facts regarding our performance and the discussion of our strategy is helpful. Despite this month’s announcement, I want to stress how important it is that we all remain energized and stay focused on winning. We have a business to run and every day we must do it better than our competitors. We must continue to provide our customers with the excellent service, quality, and selection they deserve and have come to expect from our family of stores.

    “In closing, I understand that this is a difficult process for all of us to go through. Yet, in the end I am confident that it will result in a stronger future for our company, associates, customers, vendors, and shareowners.”
KC's View:
In the interest of fairness, we thought it was important to run pretty much the whole memo as it was provided to us. (There was other stuff in there that congratulated Albertsons employees on their response to Hurricane Katrina.)

We have to admit that having read the memo, we now have a completely different view of Albertsons. Far from being the debacle that some folks have characterized it as, the Larry Johnston years actually have been a tremendous victory, with the company outperforming Wal-Mart and everybody else in key areas. This current sale is just the act of a triumphant company casting off some dead wood…

But here is another “fact” to consider.

With all the negative coverage that Albertsons has received recently, we haven’t received any emails from company employees defending the company’s strategic direction. Far from it. People we’ve heard from and to whom we have spoken sound frustrated, directionless, and even set adrift by top management. It is hard to imagine any of these folks feeling energized or convinced by Johnston’s memo, assuming any of them managed to read it through to the end. Based on what we’ve heard, it is hard to imagine a greater level of despondency among these folks who work for Albertsons or some of its divisions.

Whereas Johnston writes about “the growing and vibrant core of the company emerging,” people we hear from worry that the companies that Albertsons has acquired – like Bristol Farms and Shaws – may have been bled of their unique character and vitality by an Albertsons management that is perceived as thinking that it had much to share and little to learn.

The problem, it seems to us, is that the company may be spending too much time talking and thinking about “share owner value,” and not enough time thinking and talking about value to the consumer – about creating a supermarket chain for the 21st century that has clear and differentiated advantages from the competition.

Ironically, published reports on the growing number of parties that may be interested in bidding for Albertson’s now speculate that drug store chains Walgreens and CVS may well want a seat the table – if only to try and acquire Albertsons’ OscoDrug and Sav-On drug stores.

Add those names to a list of rumored interested parties that includes foreign retailers Tesco (though that company’s CEO Terry Leahy says that he has no interest in Albertsons) and Carrefour, investment firm Yucaipa Cos., Kohlberg Kravis Roberts, and a number of other equity and investment firms – all of which could launch solitary bids or could team up to acquire the chain.

Let’s see if by the end of the year the “facts” of what happens to Albertsons and its assets match up with the “facts” of how the situation is being portrayed by upper management.