Supermarket chain Safeway Inc. (SWY), said Wednesday it has agreed to sell its Canadian division to Canada-based grocery retail giant Sobeys Inc. for C$5.8 billion in cash. Shares of Safeway surged over 34 percent in after-hours trade, following the news.
The acquisition includes 213 grocery stores under the Safeway banner in Western Canada, 199 in-store pharmacies, 62 co-located fuel stations, 10 liquor stores, 4 distribution and 12 manufacturing facilities.
Safeway's Canadian arm generated sales of about C$6.7 billion and operating profit of C$428 million in the 52-week period ended March 23, 2013.
Empire Company Ltd (EMP_A.TO), the parent company of Sobeys, said the deal will be funded with a combination of equity offering, lease-back of purchased real estate assets, debt and cash in hand. Empire expects the deal to be immediately accretive to adjusted earnings per share.
Paul Sobey, President and CEO of Empire said, "The acquisition of Canada Safeway represents an excellent strategic fit, strengthening our presence in Western Canada with the addition of great employees, excellent stores and exceptional real estate."
The transaction has been approved by the boards of both companies. The deal is expected to close in the fall of 2013.
Marc Poulin, President and CEO of Sobeys, said, "We anticipate capturing annual cost synergies of approximately $200 million within three years, through integrating and modernizing distribution networks, reducing cost in procurement, administration and marketing, and leveraging Sobeys' IT infrastructure."
Safeway said it will use the proceeds from the sale to pay down $2 billion of debt, stock repurchases and to invest in growth opportunities.
Robert Edwards, President and CEO of Safeway, said, "The substantial cash proceeds from this transaction will allow us to create value for Safeway stakeholders and contribute to the growth of the ongoing business."
SWY closed Wednesday's trading at $23.11, down $0.20 or 0.86%, on the NYSE. The stock, however, surged $7.89 or 34.14% in after hours trade.
Empire closed Wednesday's trading at C$67.61, down C$0.97 or 1.41%, on the Toronto Stock Exchange.
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