Cerberus Capital Management-backed Albertsons announced plans to acquire all outstanding shares of Safeway Inc. for $9 billion in a merger agreement that was unanimously approved by both boards.
The buyer group also includes Kimco Realty Corp., Klaff Realty LP, Lubert-Adler Partners LP, and Schottenstein Stores Corp.
Kimco will contribute up to $90 million of new equity, together with its existing equity stake in the remaining Albertsons investments, and will hold a 9.94% ownership interest in the combined companies.
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In addition to its equity position, Kimco will provide strategic counsel to the consortium and may also have an opportunity to acquire selective real estate assets for its own account over time.
"This merger is one of several actions we have taken in recent months as a result of our strategic business review. The combined value of the transactions described above is expected to deliver a premium to Safeway's shareholders of 72% from one year ago, and 56% over the share price six months ago," said Robert Edwards, president and CEO of Safeway, who will continue in that role following the merger. "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."
Under the merger agreement, Safeway shareholders will receive $32.50 per share in cash.
In addition, shareholders will have the right to receive pro-rata distributions of net proceeds from primarily non-core assets with an estimated value of $3.65 per share. Part of those proceeds will come from the sale of the assets of Safeway’s real-estate development subsidiary Property Development Centers LLC, comprised of its shopping center portfolio, including certain related Safeway stores.
PDC projects are concentrated in Safeway's urban and suburban markets, and are predominantly located in California and Hawaii. PDC's portfolio consists of 25 properties with an estimated 3 million square feet, and is comprised of 11 operating assets, nine projects under construction, and five projects in the due diligence and entitlement phases. Safeway will soon be initiating a process to sell PDC.
The merger will create a diversified network that includes more than 2,400 stores, 27 distribution facilities and 20 manufacturing plants with over 250,000 dedicated and loyal employees. Banners will include Safeway, Vons, Pavilions, Randalls, Tom Thumb, Carrs, Albertsons, ACME, Jewel-Osco, Lucky, Shaw's, Star Market, Super Saver, United Supermarkets, Market Street and Amigos.
While no store closures are expected as a result of this transaction, the merger still has to be cleared by the U.S. Federal Trade Commission.
“In many cases involving sales to competitors, the FTC requires some stores to be sold to other grocers in order to maintain competition,” Edwards told Safeway employees this morning. "Any decisions will be made after discussions with the federal regulators. As we have information that we can share, we will do so.”
In addition, Edwards said no decisions about employment have been made nor likely to be announced prior to the closing of the merger.
Of a possible move of Safeway’s headquarters in Pleasanton, CA, to Albertson’s in Boise, ID, Edwards said, “We’re taking a look at all of our operations with that goal in mind. It’s too soon to speculate about what changes will need to be made in the future. We have a talented team of employees at our headquarters, and there are no immediate plans to relocate any operations.”
The merger could enable Albertsons and Safeway to realized substantial cost savings. The diversified network of retail assets, associated distribution centers and manufacturing assets will allow for a broader assortment of products, a more efficient distribution and supply chain, enhanced fresh and perishable offerings, and expanded private label alternatives for customers.
"Albertsons has successfully transformed underperforming retail grocery stores into strong performers by focusing on enhancing the local customer experience," said Lenard Tessler, co-head of global private equity and senior managing director at Cerberus. \
The merger agreement includes a so-called "go-shop" period, during which Safeway, with the assistance of Goldman Sachs, its financial advisor, will actively solicit, receive, evaluate and potentially enter into negotiations with parties that offer alternative proposals. The initial go-shop period is 21 days. For a 15-day period following the termination of the go-shop period, Safeway will be permitted to continue discussions and enter into or recommend a transaction with any person that submitted a qualifying proposal during the 21-day period.
A successful competing bidder who makes a superior proposal during the go-shop period would bear a $150 million termination fee. For a competing bidder who did not qualify during the go-shop period, the termination fee would be $250 million.
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