Cerberus Acquiring Safeway

Safeway agreed to an acquisition by Cerberus Capital Management the parent company of a number of supermarket chains. The deal is worth nearly $7.65 billion in cash and pending any other transaction could be over $9 billion.

The acquisition was announced on Thursday evening and will bring Albertson and Safeway together. Last year Cerberus bought Albertsons it had not already owned, from SupValu Inc as well as four other chains owned by Supervalu.

This acquisition comes amidst ongoing consolidation of the overall supermarket industry, which is facing increasing competition from the many big-box retailers, drug stores, specialty chains and even the many dollar stores.

An important competitor, Kroger Co recently acquired Harris Teeter a regional chain. Safeway in February said it was looking into putting itself up to be sold.

The company, based in Pleasanton, California had been attempting to adapt for a period of time to the increased competition and recently sold some if it’s less profitable smaller units in Canada and Chicago’s Dominick’s.

The company had over 1,300 locations in the U.S. under the names Vons, Safeway, Pavilion’s, Tom Thumb, Carrs and Randall’s.

AB Acquisition, which operates the Albertsons chain, along with Lucky, Shaw’s, Jewel-Osco, Acme and others, is owned by Cerberus and a group of other investors. It operates over 1,000 Albertson stores that are based in Boise, Idaho.

Combined both companies will total over 2,400 stores, 27 facilities for distribution and 20 plants for manufacturing.

Albertsons and Safeway say this deal will give them the ability to better respond to the needs of customers as well as lower costs. They expect to also refurbish certain stores and expand product offerings once the deal is closed.

Shareholders at Safeway will receive in cash $32.50 a share. Pending any other actions, each company said the deal is worth approximately $40 a share to existing stockholders.

Safeway shares closed on Thursday at $39.48. On February 18, the stock was selling at $34.10, which was prior to Safeway announcing it was negotiating a possible sale.

The stock was down by $1.33 or over 3% in after hours trading after the announcement of the deal was released Thursday.

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