The board of Safeway has agreed to a more than $9bn offer from an investment group led by Cerberus Capital Management in the latest takeover of a US supermarket chain by the private equity group.
The consortium – which also includes Kimco Realty, Klaff Realty, Lubert-Adler Partners, and Schottenstein Stores – will pay around $40 per share for Safeway, including
The group, which already owns the Albertsons supermarket chain, plans to combine those roughly 1,000 stores with Safeway’s more than 1,300, the companies said on Thursday. The combined company would create the third largest grocery retailer by revenues after Walmart and Kroger.
The deal, which is expected to close in the fourth quarter of this year, includes a “go-shop” period, during which California-based Safeway can actively solicit other offers. Kroger has been reported as a potential rival.
A successful competing bidder which makes a superior proposal during the go-shop period would have to pay a $150m termination fee. For a counter offer that does not qualify during that period, the fee would be $250m. Kroger executives declined to comment on acquisition plans on an earnings call also on Thursday.
Industry watchers have raised antitrust concerns about the deal, which the companies said they would address in negotiations with the Federal Trade Commission.
The Cerberus-led offer represents a 17 per cent premium over Safeway’s stock price on February 18, the day before the company disclosed that it was in sale talks. Shares in Safeway, which have risen 28 per cent in a month, fell 3 per cent to $38.10 in after-hours trading.
The deal will be financed with $7.6bn in debt, equity contributions of $1.25bn and cash.
If successful, the bid will continue the consolidation that has changed the landscape for traditional supermarket operators amid greater competition from upscale chains such as Whole Foods Market, warehouse club operators like Costco and retail giant Walmart.
“As competition heats up and customer needs change we have to adapt,” said Bob Miller, chief executive of Idaho-based Albertsons on a conference call. “This transaction offers us the opportunity to better serve customers by adapting more quickly to evolving shopping preferences in diverse regions across the country.”
The companies said there were no planned store closures at this time, but did not elaborate on future plans or cost savings.
Safeway has been under pressure from investors including Jana Partners to improve earnings. Last year it sold 72 stores in Chicago to focus on more profitable markets. Safeway last year also divested its Canadian business and spun off Blackhawk Network Holdings, a business that provides gift cards.
Robert Edwards, chief executive of Safeway, said Safeway had boosted sales trends by focusing on a local and relevant assortment of goods, offering shoppers better value and improving the shopping experience. “We are excited about continuing this momentum as a combined organisation,” he said.
Last year Cerberus lost out in an auction for Harris Teeter Supermarkets to Kroger, which paid $2.4bn for the grocery chain. The private equity group and its partners also own other chains including Chicago’s Jewel-Osco and New England’s Shaw’s.
Safeway was taken over in a leveraged buyout by a group led by KKR in 1986 for about $4.3bn, before the supermarket chain went public in 1990.
Safeway reported fourth-quarter sales of $11.3bn, up from $11.2bn in the same period last year.