Immediately after the release of its merger news, the share
price of prominent supermarket chain
) fell 3.06% in yesterday's after-market trading reflecting
discontent among the investors about the deal price. As was
hinted during its fourth quarter 2013 earnings release, Safeway
announced that it will merge with Cerberus Capital Management
LP's Albertsons for a deal valued at approximately $9.0
The deal is expected to close in the fourth quarter of 2014
subject to certain customary closing conditions. However, if the
merger agreement fails to close, AB Acquisition, the owner of
Albertsons, would pay Safeway $400 million.
As per the terms of the agreement, each shareholder of Safeway
will receive $32.50 in cash plus $3.65 per share of other
contingent consideration and $3.95 per share of Blackhawk,
representing a total value of $40.10 per Safeway share. However,
since the merger speculation was disclosed two weeks back, the
stock gained 14.0% to reach $39.47 on yesterday's close. Perhaps,
the expectation of the deal price was much higher than what the
company finally arrived at.
Currently, the deal price reflects just 1.6% premium from
yesterday's close. This premium does not look too enticing to
attract fresh investment.
Rumor of Acquisition Bid by Kroger
According to a recent Bloomberg report, leading U.S. grocery
The Kroger Co.
) recently expressed interest to buy part of Safeway's business.
Perhaps, even after the declaration of this deal with Cerberus,
this supermarket leader approached Cerberus to buy some of
However, according to Safeway, during the "go-shop" period of
21 days, if any other bidder makes an offer, Safeway has another
15 days to continue discussions on the bid.
Impending Post-Merger Scenario
The last fiscal remained quite eventful for Safeway. The
company was in news several times due to the Blackhawk IPO, its
exit from the Canadian market, the decision to sell off its
Dominic stores and to exit the Chicago market by fiscal 2014,
along with its decision to voluntarily recall many of its
products. Amid a challenging macroeconomic environment, due to
uncertainties related to unemployment rates, energy prices,
difficulties in the banking and financial services sectors, and
dwindling consumer confidence leading to reduced consumer
spending, Safeway continued to experience poor identical stores
(ID) sales. Moreover, the sluggish non-fuel ID sales growth
guidance for 2014 failed to bring about any positive indication
about an improvement in the economy.
However, the company expects to fight back after the
completion of the merger deal. After the closure of the
agreement, a diversified network will be formed by
Albertsons-Safeway with more than 2,400 stores, 27 distribution
facilities, 20 manufacturing plants and 250,000
Safeway is looking forward to this possible sellout/merger
which it expects will improve the merged entity's position in the
competitive niche, especially among stalwarts like Kroger and
Wal-Mart Stores Inc.
). The combined company is expected to offer more competitive
prices and better customer service in a fiercely competitive and
dynamic retail market. Notably, Kroger is also expanding its
business through inorganic means like acquisitions. Earlier this
year, the company acquired regional grocer Harris Teeter
Supermarkets for around $2.5 billion.
Currently, Safeway retains a Zacks Rank #5 (Strong Sell).
However, retail-supermarket stock
Etablissements Delhaize Fr
) is expected to do well with a Zacks Rank #2 (Buy).
DELHAIZE-LE (DEG): Free Stock Analysis Report
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