Inside This Issue - News
Safeway, Albertsons will merge
March 17th, 2014
PLEASANTON, Calif. – A group led by Cerberus Capital Management LP has agreed to buy Safeway Inc. in a deal valued at more than $9 billion.
Cerberus plans to merge Safeway with Albertsons LLC, creating a supermarket chain with more than 2,400 stores and close to 2,000 pharmacies. That will make the combined company one of the top seven pharmacy operators in the country.
Bob Miller, former head of Rite Aid Corp., will be the merged company’s executive chairman. Safeway president and chief executive officer Robert Edwards will retain those roles with the enlarged chain.
The deal will combine the two retailers’ rosters of supermarket banners, including Safeway, Vons, Pavilions, Randalls, Tom Thumb, Carrs, Albertsons, Acme, Jewel-Osco, Lucky, Shaw’s, Star Market, Super Saver, United Supermarkets, Market Street and Amigos. It also encompasses Osco and Sav-on in-store pharmacies.
No store closures are anticipated as a result of the deal, which is expected to close in the fourth quarter.
“This transaction offers us the opportunity to better serve customers by adapting more quickly to evolving shopping preferences in diverse regions across the country,” says Miller. “It also brings together two great organizations with talented management teams.
“Robert Edwards and his team have done an outstanding job in positioning Safeway’s core business for success, by investing in its stores and creating innovative marketing programs that contribute to shareholder value. Working together will enable us to create cost savings that translate into price reductions for our customers. Together, we will be able to respond to local needs more quickly and deliver outstanding products at the lowest possible price more efficiently than ever before.”
Albertsons and Safeway say the merger will enable them to implement operational best practices and offer customers an enhanced shopping experience and more competitive prices. Substantial cost savings from operational efficiencies will allow for investments that are expected to benefit customers, including price reductions as well as store remodels and refurbishments, the companies note.
In addition, they say, the more diverse retail network, distribution centers and manufacturing assets will enable a wider assortment of products, a more efficient distribution and supply chain, enhanced fresh and perishable offerings, and expanded private label options.
“This merger is one of several actions we have taken in recent months as a result of our strategic business review,” Edwards states. “Safeway has been focused on better meeting shoppers’ diverse needs through local, relevant assortment; an improved price/value proposition; and a great shopping experience that has driven improved sales trends. We are excited about continuing this momentum as a combined organization.
“We look forward to working with Bob Miller and the rest of the Albertsons team as we proceed together on a path toward becoming an even stronger organization.”
Safeway has been owned by a private equity firm before. KKR & Co. took the chain private 28 years ago in a $4.3 billion deal and then sold its stake in 1999. The retailer had gone public in 1990.
More recently Safeway has sought to simplify its business by divesting noncore operations. In 2013 it spun off its gift card provider, Blackhawk Network Holdings Inc., with an initial public offering. It also sold its Canadian business to the operator of supermarketer Sobeys Inc. for $5.8 billion.
Safeway also exited Chicago, selling 72 Dominick’s stores in the area after activist investor Jana Partners pushed it to reconsider its strategic direction.
The grocer said last month it had opted to distribute the remaining 37.8 million Blackhawk shares it owns to Safeway shareholders. It also said “it is an appropriate time” to pursue options for its 49% stake in Casa Ley S.A. de C.V., the No. 5 food and general merchandise chain in Mexico.
The grocer, which has more than 1,300 stores in the United States under the Safeway, Vons and Pavilions banners, has suffered from competition from Kroger Co. as well as natural food purveyors Whole Foods Market Inc. and Trader Joe’s Co. It has also struggled to compete with Walmart and Target Corp., and even online retailer Amazon, which offers home delivery for groceries in selected cities.
“Albertsons has successfully transformed underperforming retail grocery stores into strong performers by focusing on enhancing the local customer experience,” says Lenard Tessler, cohead of global private equity and senior managing director at Cerberus. “Similarly, Safeway has consistently provided outstanding value and customer service throughout the communities it serves. Combining these strong management teams will strengthen the ability of Safeway and Albertsons to deliver on a shared commitment to offering customers higher-quality products at lower prices, which will undoubtedly yield positive results for all stakeholders in the business.”