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WSJ: Cerberus Nears Over $9 Bln Deal For Safeway, Kroger Mulls Bid

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Private equity firm Cerberus Capital Management LP is in the process of finalizing a deal to buy grocery chain Safeway, Inc. (SWY: Quote) for about $40 per share or in excess of $9 billion in a deal billed as one of the largest supermarket buys recently, according to a Wall Street Journal report on Wednesday. A deal is expected to be announced this week or early next week.

Meanwhile, supermarket chain Kroger Co. (KR), the largest in the U.S. by market share and revenue, has also 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. Meanwhile, Safeway is said to prefer selling the company as a whole.

A deal with Kroger could raise concerns of antitrust regulators as Safeway is the second-largest grocery chain in the U.S. by market share and revenue. They together would end up controlling 28.2 percent of U.S. market. Meanwhile, Kroger is also now said to be looking to raise a bid for the whole of Safeway.

Cerberus owns the supermarket chain Albertsons LLC., which it bought from Supervalu, Inc. (SVU) as part of a $3.3 billion deal in early 2013. However, the proposed Safeway deal could be one of its largest supermarket buys recently. An investment group led by Cerberus had earlier in 2006 acquired more than 650 Albertsons stores for about $1.1 billion.

Pleasanton, California-based Safeway, a Fortune 100 company, operates more than 1,300 stores in the U.S. located in the West, Southwest, Rocky Mountain and mid-Atlantic regions.

Safeway had revealed it mid-February while reporting fourth quarter financial results that it is in discussions for a possible sale of the company.

Safeway has been shedding unprofitable assets after it was pushed by hedge fund Jana Partners LLC, which had has acquired about 6.2 percent stake in the retailer. It asked Safeway to review strategic alternatives including its operating markets and exiting subscale and lower margin geographies, among other things.

Safeway exited the Canadian market after it completed the sale of its Canadian operations to Empire Co. Ltd. (EMP_A.TO), the parent company of Sobeys, Inc., in early November in a deal valued at about $5,8 billion in cash. It had also announced in October that it would cease operating the 72 Dominick's stores in the Chicago area by early 2014.

Safeway is also exploring the monetization of its 49 percent ownership in Casa Ley S.A. de C.V., the fifth largest food and general merchandise retailer in Mexico based by sales.

SWY closed Wednesday's regular trading session at $39.48, up $0.83 or 2.15% on a volume of 10.43 million shares.

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by RTT Staff Writer

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