Why Safeway Shares Surged

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of grocery store operator Safeway (UNKNOWN: SWY.DL  ) climbed 10% today after adopting a "poison pill" to prevent a hostile takeover.

So what: Safeway learned that an unnamed investor has bought up a significant stake in the company recently, so the poison pill should give management the room it needs to continue with its turnaround initiatives. Specifically, the company's defensive plan -- one preferred stock purchase right will be distributed for each share of common stock held as of Sept. 30 -- becomes exercisable if a person or group acquires 10% or more of the company's common stock, or 15% by an institutional investor, making it pretty expensive for an investor to purchase a controlling stake.

Now what: With the poison pill in place, expect the pending sale of Safeway's Canadian assets to proceed without a hitch. "The Board of Directors believes that the rights plan will help promote the fair and equal treatment of all stockholders of the Company and ensure that the Board remains in the best position to discharge its fiduciary duties to the Company and its stockholders," said Safeway in a statement. Of course, with the stock now up more than 100% from its 52-week lows and trading at a 20-plus P/E, I'd wait for a much wider margin of safety before jumping in.

Retail Movers and Shakers
The retail space is in the midst of the biggest paradigm shift since mail order took off at the turn of last century. Only those most forward-looking and capable companies will survive, and they'll handsomely reward those investors who understand the landscape. You can read about the 3 Companies Ready to Rule Retail in The Motley Fool's special report. Uncovering these top picks is free today; just click here to read more.

Read/Post Comments (0) | Recommend This Article (4)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Compare Brokers

Fool Disclosure

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2641629, ~/Articles/ArticleHandler.aspx, 9/29/2016 1:13:31 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Today's Market

updated Moments ago Sponsored by:
DOW 18,179.75 -159.49 -0.87%
S&P 500 2,149.15 -22.22 -1.02%
NASD 5,266.92 -51.63 -0.97%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

1/30/2015 4:05 PM
SWY.DL $0.00 Down +0.00 +0.00%
Safeway CAPS Rating: **