Tags: safeway | buyout | report | stock

Safeway Buyout Report Causes Supermarket Chain's Stock to Jump

Image: Safeway Buyout Report Causes Supermarket Chain's Stock to Jump

Thursday, 24 Oct 2013 01:06 PM

By Michael Mullins

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A Safeway buyout report this week caused the supermarket chain's stock to jump Wednesday, after another firm expressed interest in possibly buying out the California-based retailer.

On Tuesday, Reuters, citing unnamed sources connected with the possible buyout, reported that the private equity firm Cerberus Capital Management LP was considering a buyout of the retailer, which is the second largest supermarket chain in North America after The Kroger Company.

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If the equity firm follows through with the buyout, the Associated Press reported it could potentially be one of the largest buyouts since the start of the financial crisis.

When contacted by the AP on Tuesday, Safeway reportedly declined to comment on the speculation.

In September, a hostile takeover was averted by Safeway when the company swallowed what analysts described as a "poison pill" to prevent an investor from accumulating a significant portion of its stock.

Safeway's plan to prevent its acquisition involved offering existing shareholders an opportunity to purchase more stock at a discounted rate, which discouraged the investor from a hostile takeover.

The "poison pill" came after the hedge fund Jana Partners LLC disclosed that it had acquired a 6.2 percent stake in Safeway.

In its filing, Jana Partners said that it "believes the shares are undervalued and represent an attractive investment opportunity," the AP reported.

Jana Partners, which manages about $5 billion and is run by Barry Rosenstein, generally invests in companies undergoing changes such as mergers, spinoffs and bankruptcies, and is known for pushing management to consider changes.

Last Thursday, Safeway announced that its board authorized an additional $2 billion in stock repurchases, adding to the roughly $800 million the grocery store operator had left under an existing authorization at the end of the third quarter.

As a result of the recent buyout speculation and changes implemented by Safeway so far this year, the company's stock has increased by 80 percent since the start of 2013, with a nine percent surge on Tuesday alone following the Reuters report.

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In June, the California-based retailer sold its supermarket operations in Canada to food retailer Sobeys for $5.7 billion.

Sobeys, a unit of Empire Company Ltd., said the deal included 213 grocery stores under the Safeway banner in western Canada, 10 liquor stores, 12 manufacturing facilities and four distribution centers.

Safeway presently has approximately 1,400 supermarkets in the U.S., primarily in western states, where it also operates under store names such as Vons, Randalls and Tom Thumb.

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