By Dana Mattioli and Dana Cimilluca
Cerberus Capital Management LP agreed to buy Safeway Inc. in a
more than $9 billion deal that would be the private-equity firm's
latest acquisition of a big U.S. grocery chain.
A Cerberus-led group is paying just over $40 a share for
Safeway, the companies said on Thursday. Based on Safeway's 235
million diluted shares outstanding, the agreement would value the
Pleasanton, Calif., company at about $9.4 billion.
The deal brings together Cerberus's Albertsons chain--the
fifth-largest U.S. grocery store banner by market share, according
to research firm Euromonitor International--with Safeway, the
second largest. It would create a food retailer with more than
2,400 stores and more than 250,000 employees. Traditional food
sellers like Safeway and Albertsons have been pressured from
low-price entrants, including Wal-Mart Stores Inc., and higher-end
retailers like Whole Foods Market Inc.
Albertsons and Safeway officials said on a conference call after
the announcement that the deal would allow the combined company to
save money by uniting their distribution and purchasing
capabilities. They said they would use those savings to lower
prices for customers and improve stores.
Cerberus had faced potential competition from Safeway's larger
rival, Kroger Co., which as recently as Wednesday was considering
its own bid for part or all of the company, people familiar with
the matter had said. Kroger could still mount a competing bid, as
the Cerberus deal includes a so-called go-shop provision, meaning
Safeway and its bankers at Goldman Sachs Group Inc. will seek other
offers for the company. Should another bidder ultimately prevail,
it would have to pay a breakup fee to Cerberus of $150 million or
$250 million, depending on how soon any such deal is reached.
One factor Kroger would have to contend with should it mount a
competing bid: Such a deal would marry the nation's two largest
grocery chains and would likely draw a hard look from antitrust
regulators.
Cerberus is paying $32.50 a share in cash and would give Safeway
shareholders the right to receive proceeds from asset sales that
could be worth another $3.65 a share. The deal price cited by the
companies includes an estimated $3.95 worth of shares in gift-card
company Blackhawk Network Holdings Inc. that Safeway already agreed
to distribute to its investors.
Safeway has more than 1,300 stores in the U.S., located in the
West, Southwest, Rocky Mountain and mid-Atlantic regions under a
number of banners including its namesake and Vons, Randalls and
others.
Cerberus and Safeway have been holding talks for months about a
possible deal, according to people familiar with the matter.
Safeway said in February that it was in discussions about a
possible sale of the company. Cerberus, with Albertsons, was widely
considered one of the most likely buyers.
Cerberus already has a sizable presence in the grocery-store
industry through other acquisitions, namely last year's purchase of
Supervalu Inc.'s Albertsons stores and four of its other chains,
including Chicago's Jewel-Osco and New England's Shaw's. An
investment group led by Cerberus in 2006 acquired more than 650
Albertsons stores for about $1.1 billion. At the time, Supervalu
took a separate chunk of the Albertsons Inc. supermarket empire.
Supervalu struggled, and last year sold its Albertsons stores and
other chains--as well as a stake in itself--to Cerberus. The deal
brought Albertsons supermarkets back under single ownership.
Last year, Cerberus tried to buy higher-end grocer Harris Teeter
Supermarkets Inc. but lost out to Kroger, which agreed to pay $2.4
billion for the chain.
Safeway's shares closed off a penny at $39.47 in 4 p.m. trading
on Thursday after The Wall Street Journal reported that a deal had
been reached. The shares have risen 28% in the past month on
investor expectations that the company would be bought for a
premium price.
Cerberus has over $25 billion under management. Outside the
grocery industry, the private-equity firm has a number of
investments in companies, including bus manufacturer Blue Bird
Corp., DynCorp International Inc. and specialty pharmaceutical
company Covis Pharma.
Greenhill & Co. advised Safeway on the deal along with
Goldman Sachs. Citigroup Inc. was lead financial adviser to the
Cerberus group, which also was advised by Bank of America Merrill
Lynch and Credit Suisse Group AG.
Annie Gasparro contributed to this article.
Write to Dana Mattioli at dana.mattioli@wsj.com and Dana
Cimilluca at dana.cimilluca@wsj.com
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