A handful of buyout firms, including Cerberus Capital Management LP, have been exploring a deal for all or part of Safeway, Reuters reported in October.
Cerberus is currently in talks with Safeway about a possible transaction, a person familiar with the matter told Reuters.
The source asked not to be identified because the talks are private. A Safeway spokesperson could not immediately be reached for comment on the talks with Cerberus. Cerberus declined to comment.
The news comes as the operator of chains such as Safeway, Vons and Dominick’s tries to fend off tough competition in the grocery aisle from traditional players such as Kroger Co, warehouse club Costco Wholesale, discounter Wal-Mart Stores Inc and dollar stores.
Safeway shares trade at about 19.9 times forward earnings, while the larger grocery sector trades at a multiple of 15.2. T
Safeway also reported a better-than-expected profit in the fourth quarter.
Net earnings from continuing operations fell to $100 million, or 35 cents a share, for the fourth quarter, from $170.7 million, or 71 cents a share, a year earlier.
Excluding items, it earned 53 cents a share, beating the analysts’ average estimate of 48 cents a share, according to Thomson Reuters I/B/E/S.
Safeway has been trying to streamline its business by selling off non-core units. It spun off its gift card provider, Blackhawk Network Holdings Inc, into a separate publicly traded company, selling a 19 percent stake. It also sold off its Canadian operations to Empire Co Ltd, the operator of Canadian retailer Sobeys, for $5.8 billion in cash.
The company said it has decided to distribute the remaining 37.8 million shares it owns of Blackhawk Network to Safeway shareholders.
Safeway also said “it is an appropriate time” to explore alternatives for its 49 percent stake in Casa Ley, the fifth-largest food and general merchandise retailer in Mexico.
Dhanya Skariachan and Greg Roumeliotis are reporters for Reuters News in New York