Please ensure Javascript is enabled for purposes of website accessibility

Why Safeway Shares Surged

By Brian D. Pacampara, CFA - Sep 17, 2013 at 12:50PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Is this meaningful? Or just another movement?

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 (NYSE: SWY) 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.

Fool contributor Brian Pacampara has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. 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.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 08/07/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.