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Has Harris Teeter found a buyer?

While Harris Teeter and Cerberus Capital Management LP remain tight-lipped about reports of a possible acquisition, two analysts are offering contrasting views on what a deal could mean for the Matthews-based supermarket chain.

The Wall Street Journal reported Wednesday that Cerberus, the New York City-based private equity firm, had made a bid for Harris Teeter. A Cerberus spokesman told the Observer the company did not comment on “market rumors.” A Harris Teeter spokeswoman referred a reporter to a February statement, when the supermarket chain announced it was exploring the sale of the company after two hedge funds had inquired about buying it.

Details of any deal between Harris Teeter and Cerberus – or even if one exists – remain unknown. The Journal, citing a person familiar with the matter, said Cerberus plans to keep Harris Teeter’s management team and headquarters intact.

Cerberus is no stranger to grocery store chains. Three months ago, it acquired five supermarket chains from Minnesota-based Supervalu Inc.: Albertsons, Acme, Jewel-Osco, Shaw’s and Star Market. Cerberus gained 877 locations in the $3.3 billion deal.

The deal resulted in changes in the management of Supervalu, with Cerberus bringing in its own leadership team.

Wednesday’s report followed months of speculation about a potential sale of Harris Teeter. In its February statement, the grocer confirmed it had retained J.P. Morgan as a financial adviser to help explore its options. In May, Harris Teeter said in a securities filing that it was in discussion with “certain parties” about strategic alternatives, but that it was unknown whether a deal would emerge.

One supermarket-industry analyst said Wednesday a sale to Cerberus would mean job cuts as the private equity firm looks to boost cash flow. But another sees cuts as unlikely, as Cerberus would look to capitalize on Harris Teeter’s success to potentially boost results in underperforming stores in the chains Cerberus acquired earlier.

David Livingston, a Wisconsin-based supermarket analyst, sees cuts ahead. “Anytime a private investment firm buys a grocery company, it’s not about selling groceries,” Livingston said. “It’s about how they can increase cash flow.”

If Cerberus buys Harris Teeter, he said, it would likely cut jobs and possibly reduce the number of stores. Harris Teeter operates more than 200 stores, two-thirds of which are in North Carolina.

Hard decisions

Livingston said Harris Teeter is likely passing off the company during a time of thick competition in the supermarket industry. Publix, the privately held grocery chain that is substantially larger than Harris Teeter, is expanding into Charlotte, with new stores planned in Ballantyne and South End. Meanwhile, Wal-Mart offers stiffer competition than ever, Livingston said.

“It’s better to have someone else make those hard decisions,” Livingston said.

Data released in April showed Harris Teeter had pushed past Wal-Mart to regain the No. 1 market share in the Charlotte region.

Andrew Wolf, an analyst with BB&T Capital Markets, noted that acquiring Harris Teeter would be a departure for Cerberus, which has typically sought more troubled companies. Harris Teeter reported increased operating profits in the third quarter, jumping 7.3 percent to $56.3 million.

For that reason, Wolf doesn’t expect significant job losses or store closings.

“You don’t pay up for a strong asset and then take the risk of damaging it,” Wolf said. “That doesn’t make sense.”

Cerberus holds stakes in a variety of other industries as well, including health care and gun and ammunition operations. Cerberus recently made headlines after it put Freedom Group, the gun company Cerberus formed in 2007, up for sale after it was discovered that the gun company had manufactured one of the guns used in the school shootings in Newtown, Conn. Freedom Group, based in Madison, N.C., is still owned by Cerberus, according to the private equity company’s website.

Harris Teeter shares rose more than 3 percent Wednesday on news of the potential Cerberus acquisition, trading at $47.33.

Looking for best bid

Wolf noted that it’s unknown whether Cerberus is the only bidder in the game.

“I wouldn’t be surprised if other bidders are showing up,” Wolf said. “Even supermarket companies could be interested in Harris Teeter.” Publix and Kroger are among the chains that have been mentioned as possible acquirers, though Publix has played down the possibility.

And just because potential suitors exist, doesn’t mean a deal will be made, Wolf said.

“In a way, it’s an auction,” Wolf said. “They have to have an open process that benefits the shareholders. They have to get the best and strongest bid.” Staff Writer Ely Portillo and researcher Maria David contributed.

McCabe: 704-358-5197; Twitter: @mccabe_caitlin
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