Safeway to Merge With Albertsons in Anticipated Purchase

SafewayShoppers may be seeing some changes in their favorite grocery store in the future. Safeway, Inc, the second-largest grocery chain in the U.S., has announced that it is being bought by Cerberus Capital Management, a private equity firm known in North America for its Albertsons, United Supermarkets, Pavilion and Vons brands. The anticipated purchase, which includes a purchase price of just over $9 billion, would merge rival Albertsons and Safeway and add a substantial increase to Cerberus’ portfolio of U.S.-based stores. It would also boost Albertsons’ prominence, which is the country’s 5th-largest grocery chain and holds a strong foothold in Northwest markets.

The deal represents about $40 per share and a 1.3 percent increase to the store’s closing price of $39.49 per the NYSE. Stocks opened down this morning at $38.41.

The acquisition would a consolidation of approximately 2,400 stores, with more than 200,000 employees. No store closures are anticipated from the purchase, and it may be too soon to know whether the merge would mean a name change for either Safeway or Albertsons. No layoffs have been announced at this time.

The purchase does not include the retail chain in Canada, which was sold to the Canadian grocery firm Sobeys late last year. The U.S. retail chain is based in Pleasanton, Calif. and currently includes 1,335 stores throughout the United States.

New York-based Cerberus is known for its purchase of distressed securities, leveraged buyouts and real estate investments. It was co-founded in 1992 by Steve Feinberg and William L. Richter. Former Vice President Dan Quayle under George H. Bush in the 1990s, serves as the chair of Cerberus’ global investments division. Its European affiliate, Promotoria Holdings recently purchased the non-performing pool of East Project loans from British banking magnate Lloyds Banking Group and has been active in the European real estate market, where market values have dropped due to the recession.

Albertsons’ current Chairman of the Board Bob Miller, who joined the Cerberus team in 2006 has been tapped as the conglomerate’s new executive chairman. It’s a good pick for this new merger, since Miller is well-versed in the success and management of one of Albertsons’ key competitors, Fred Meyer, Inc and its parent corporation, Kroger Inc. Kroger has apparently been eyeing a portion of the Safeway stock recently, raising speculation that the national retail firm may make a counter offer for all or part of the enterprise. Kroger has reportedly also approached Cerberus about taking some stores off of its hands.

Safeway CEO, Robert Edwards is to serve as the new combined company’s CEO.  Its brands are expected to include all of Cerberus’ retail stores, including its less-known regional stores like Randalls, Star Market and Jewel-Osco.

Miller has praised the deal, noting that it will increase the company’s buying power and ability to respond to consumers’ needs more quickly.

Cerberus Senior Management Director Lenard Tessler said the purchase will benefit stockholders as well as consumers through the merger of Albertsons and Safeway’s unique brands and potentials, both of which he said are anticipated to reflect quality products at more competitive prices.

By Jan Lee