Supervalu shares tumble nearly 50 pct.

Northside Cub
Cub Foods in North Minneapolis. Shares of Eden Prairie-based Supervalu, the third-largest U.S. grocery chain, fell 49 percent on Thursday, July 12, 2012.
MPR File Photo/Jessica Mador

Shares of Eden Prairie-based Supervalu, the third-largest U.S. grocery chain, fell 49 percent Thursday, as Wall Street reacts to the company's decision to suspend dividend payments to shareholders and explore the possible sale of all or parts of the company.

The company's stock closed at $2.69 a share, down from $5.29.

CEO Craig Herkert told analysts Wednesday that bankruptcy would not be considered as an option.

But Wall Street certainly seems to think bankruptcy is a possibility. A Chapter 11 bankruptcy would allow the company to reorganize its business, shed debt and terminate labor and other contracts. But its stock would be worthless.

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Grocery industry analyst David Livingston said bankruptcy has to be under consideration.

"I'm sure that's going to be an option," he said. "No company wants to admit that."

The grocery chain operator has lost about $2.5 billion over the past two years. Supervalu, which last month announced layoffs in its Albertsons unit in California and Nevada, plans to increase price cuts at its stores and ramp up its cost-cutting program by an additional $250 million over the next two years.

Analysts says Supervalu is a middle-market grocer that can't compete with high-end grocers on service and quality or match discounters like Walmart on price.

"Supervalu could become the next casualty in the troubled supermarket space, as its fundamentals have finally begun to show real signs of distress after years of steady underperformance," Edward Kelly, an analyst at Credit Suisse in New York, wrote in a note to investors. "Supervalu fundamentals may be beyond repair at this point."

Once worth more than $10 billion, Supervalu's stock has tumbled by almost two-thirds since 2008 as the nation's economy fell into a recession and consumers increasingly went to Walmart, Target, Aldi, Costco and other retailers to buy groceries. This year, the company has already reduced prices by as much as 20 percent on about 200 produce items.

But Supervalu CEO Craig Herkert said his stores must become more price-competitive.

"Given the economic situation the American consumer is in, a lot of grocery competitors are focused on making sure they have the right value proposition for customers," Herkert told analysts Wednesday. "We needed to accelerate our ability to play in that game."

But many analysts and investors doubt Supervalu can win.

"We are not convinced that this initiative will succeed," said Credit Suisse's Kelly. "Supervalu may not have the ability to absorb the large earnings hit associated with material price cuts."

Analysts say Supervalu's stores in the Twin Cities and Chicago are doing pretty well and could find buyers. But they say it may be hard to find buyers for other parts of Supervalu's business.

In Minnesota, Supervalu has 44 company-owned stores, all but one operate as Cub Foods. The company has about 8,700 employees in Minnesota and 130,000 nationwide.

This report contains material from the Bloomberg News Service.