Target: Safeway Inc
Price: $9.4 billion
Sponsor: Cerberus Capital Management
Seller: Safeway Inc
Financial Advisers: Seller: Goldman Sachs Group Inc, Greenhill & Co Inc; Sponsor: Citigroup Inc, Bank of America Corp, Credit Suisse AG
Legal Counsel: Seller: Latham & Watkins LLP
The offer price of $40 per share represents a premium of 1.3 percent to Safeway’s Thursday closing stock price of $39.47 on the New York Stock Exchange, sister news service Reuters reported. Safeway shareholders will receive $32.50 per share in cash plus other distributions with a value of $3.65 per share.
The deal combines Safeway with Cerberus’s Albertsons chain, creating a dominant grocery franchise on the West Coast. It also creates a grocery network of more than 2,400 stores and 250,000 employees. No store closures are expected, according to the company.
Cerberus is a seasoned investor in the supermarket sector. Last March, a Cerberus-led investor group acquired a group of grocery chains from Supervalu Inc, including Albertsons and Jewel-Osco, for $3.3 billion. Cerberus previously owned 650 Albertsons locations as a result of a 2006 deal under which the chain was acquired and its stores broken up between the private equity investor, Supervalu and CVS Caremark Corp.
Safeway has been in the hands of private equity before. Kohlberg Kravis Roberts & Co took Safeway private in 1986, and then sold its stake in 1999.
Safeway has been trying to streamline its business by selling off non-core units. Last year, it spun off its gift card provider, Blackhawk Network Holdings Inc, into a separate publicly traded company. It also sold off its Canadian business to the operator of Canadian retailer Sobeys for $5.8 billion in cash.
More recently, Safeway has revealed plans to leave the Chicago market by early this year. That announcement came after activist investor Jana Partners pressured the company to review strategic alternatives, including exiting weak markets.
Reuters first reported last October that Cerberus was exploring a buyout of Safeway.
Goldman Sachs Group Inc and Greenhill & Co Inc advised Safeway on the transaction. Latham & Watkins LLP served as outside counsel. Citigroup Inc, Bank of America Corp and Credit Suisse AG advised Albertsons, Cerberus and its investor group.
Siddharth Cavale is a correspondent for Reuters in Bangalore.