Safeway Sale Close to Completion

Supermarket chain Safeway is close to tying up a sale to private equity firm Cerberus, although Kroger may also be putting in a bid.

Mar 11, 2014 at 4:51PM

Safeway (NYSE:SWY), America's second-largest grocery chain, hasn't been faring as well as its competitors lately. Beset on one side by specialty retailers like Whole Foods Market, and on the other by discounters and dollar stores, Safeway seems to have lost a good deal of its customers. The company has been looking to sell itself, or at least parts of its business. Private equity firm Cerberus has nearly closed the purchase of the supermarket chain, but Kroger (NYSE:KR) has also stated it may be interested in buying parts of Safeway's business.

Safeway

Source: Wikimedia Commons.

Private equity party
For some historical perspective, it is perhaps useful to note that this is not the first time Safeway has come into contact with a private equity firm. In 1986, Safeway was acquired in a leveraged buyout by New York investing firm Kohlberg Kravis Roberts for around $4.25 billion, primarily to avoid a hostile takeover by Dart Group. The deal was an enormously lucrative one for KKR, which sold its stake in 1999 to make more than $7 billion on its original investment. The bailout was also an important one for Safeway.

So, it seems as if Safeway has had some good experiences with private equity firms, which perhaps partly explains why it is currently in talks with Cerberus. According to The Wall Street Journal, Cerberus is close to closing a deal worth around $9.2 billion, which translates into around $40 per share, or roughly $0.50 above the closing price at the time of writing. The stock dropped following the news, however, indicating that investors had expected a higher buyout price. . 

Under the deal, Cerberus would acquire the whole caboodle, which would add some 1,335 stores to Cerberus' supermarket portfolio. Cerberus already owns the Albertsons chain, which together with Safeway locations would create a dominant supermarket force in the western U.S., with a countrywide total of about 2,400 locations. The deal is still not completely finalized, however, with a clause giving Kroger and other potential suitors 21 days to bid on parts of the chain.

Kroger stepping in
For a while, it seemed as if Cerberus was the only potential suitor, which would support the company's bargaining position. Kroger, too, has now expressed interest in part of Safeway's business, but Cerberus is still seen as the favorite due to potential antitrust issues surrounding the tie-up of the No. 1 and No. 2 U.S. supermarket chains.

In any case, Kroger has been in touch with Cerberus over buying stores that the company might not want, some valuing a complete takeover by Kroger at around $13 billion, a hefty sum. As stated above, rival bidders now have 21 days to make a deal. Safeway is perhaps hoping that Kroger will offer a better price for parts of the chain. However, according to sources familiar with the matter, Safeway would prefer to be sold as a whole. 

The bottom line
The supermarket industry was recently shaken up by the news that Safeway was looking to sell to Cerberus in a deal worth around $9 billion. Struggling with increased competition, Safeway has been mulling over various strategic options.

However, the deal will likely be complicated by Kroger stepping in, as America's largest grocery store operator looks to buy parts of the business as well. It is unlikely that Kroger will consider a complete takeover, as such a deal would inevitably run into antitrust concerns, but increased interest in Safeway's assets could potentially complicate Cerberus' buyout.

Is Safeway a solid pick going forward?
There's a huge difference between a good stock and a stock that can make you rich. The Motley Fool's chief investment officer has selected his No. 1 stock for 2014, and it's one of those stocks that could make you rich. You can find out which stock it is in the special free report "The Motley Fool's Top Stock for 2014." Just click here to access the report and find out the name of this under-the-radar company.

John Mackey, co-CEO of Whole Foods Market, is a member of The Motley Fool’s board of directors. Daniel James has no position in any stocks mentioned. The Motley Fool recommends Whole Foods Market. The Motley Fool owns shares of Whole Foods Market. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Money to your ears - A great FREE investing resource for you

The best way to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as “binge-worthy finance.”

Feb 1, 2016 at 5:03PM

Whether we're in the midst of earnings season or riding out the market's lulls, you want to know the best strategies for your money.

And you'll want to go beyond the hype of screaming TV personalities, fear-mongering ads, and "analysis" from people who might have your email address ... but no track record of success.

In short, you want a voice of reason you can count on.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich," rated The Motley Fool as the #1 place online to get smarter about investing.

And one of the easiest, most enjoyable, most valuable ways to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as "binge-worthy finance."

Whether you make it part of your daily commute or you save up and listen to a handful of episodes for your 50-mile bike rides or long soaks in a bubble bath (or both!), the podcasts make sense of your money.

And unlike so many who want to make the subjects of personal finance and investing complicated and scary, our podcasts are clear, insightful, and (yes, it's true) fun.

Our free suite of podcasts

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. The show is also heard weekly on dozens of radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable. Rule Breaker Investing and Answers are timeless, so it's worth going back to and listening from the very start; the other three are focused more on today's events, so listen to the most recent first.

All are available for free at www.fool.com/podcasts.

If you're looking for a friendly voice ... with great advice on how to make the most of your money ... from a business with a lengthy track record of success ... in clear, compelling language ... I encourage you to give a listen to our free podcasts.

Head to www.fool.com/podcasts, give them a spin, and you can subscribe there (at iTunes, Stitcher, or our other partners) if you want to receive them regularly.

It's money to your ears.

 


Compare Brokers