Cerberus To Buy Safeway In $9 Bln. Deal - Update

(RTTNews) - Grocery store chain Safeway Inc (SWY), Thursday agreed to be acquired by an investor group led by private equity firm Cerberus Capital Management for more than $9 billion, as Cerberus further expands its grocery store portfolio.

Safeway shareholders will receive total payments of about $40 a share, which consists of $32.50 a share in cash, plus $3.65 a share from sale of non-core assets and also a stock in Blackhawk Network Holdings Inc. (HAWK) worth $3.95 a Safeway share that will be distributed in mid-April.

The offer price of $40 per share represents a premium of 1.3 percent to Safeway's Thursday closing. However, the shares took a beating in the extended trade and dropped $1.32 or 3.34% on a heavy volume. Earlier, reports had suggested the offer to be $40 a share in cash.

The deal merges Cerberus' supermarket chain Albertsons with Safeway, which is the second-largest U.S. grocery chain. The deal will create a network that includes over 2,400 stores, 27 distribution facilities and 20 manufacturing plants with over 250,000 employees. No store closures are expected.

Bob Miller, Albertsons current Chief Executive Officer, will become Executive Chairman, while Robert Edwards, Safeway's current President and Chief Executive Officer, will become President and Chief Executive Officer of the combined company.

The merger is expected to close in the fourth quarter, subject to customary closing conditions.

Safeway had last month revealed that it is in discussions for a possible sale of the company. Pleasanton, California-based Safeway has been divesting its business and simplifying it operations as it struggles to improve sales amidst weak economy and fierce competition from other big retailers. The company had recently exited from the Chicago market, after divesting its Canadian division and spinning-off Blackhawk, its prepaid gift cards and payment service business.

Meanwhile, supermarket chain Kroger Co. (KR) was reported to have recently approached Safeway for buying part of its operations. Kroger also contacted Cerberus, which is the lead bidder for Safeway, about buying some stores that Cerberus may not want. Cincinnati-based Kroger is the largest supermarket chain in the U.S. by market share and revenues, while Safeway is the second largest.

However, a deal with Kroger could raise concerns of antitrust regulators as they together would end up controlling 28.2 percent of U.S. market.

SWY closed Thursday's trading at $39.47, down $0.01 or 0.03%, on the NYSE. The stock further dropped $1.32 or 3.34% in after-hours trade.