Safeway, the nation's No. 2 supermarket chain, is being sold for $9 billion to an investment group led by private equity firm Cerberus Capital Management.
Under terms of the long-rumored deal, Safeway will merge its brands with Albertsons. The Idaho-based grocer, the naton's fifth-largest, is controlled by Cerberus, which operates more than 1,100 stores under the Albertsons, Acme, Jewel-Osco and Shaw's brands.
The newly formed, 2,400-store company is the latest in a series of acquisitions and buyouts that's reshaping an increasing competitive industry, squeezed by rising costs, traditional rivals, discounters, warehouse clubs and upscale chains such as Whole Foods Market.
The Cerberus bid is worth $40.10 a share. Stockholders will receive $32.50 a share in cash and rights from asset sales worth $3.65 a share. They'll also get shares in Safeway spinoff Blackhawk Network Holdings, a gift card company, worth $3.95 a share.
Safeway eased 1 cent to $38.47 a share Thursday, but was down 3.4% to $38.14 in after hours trading. Shares have gained about 12% since Feb. 18, when management said it was exploring a potential sale with an unnamed suitor.
Safeway CEO Robert Edwards will become CEO of the new firm, while Albertsons CEO will become executive chairman.
"There is a clear and compelling rationale for this merger,'' Edwards said in an conference call with stock analysts. "This merger will improve our competitive position." Edwards said synergies will lead to operational savings and lower consumer prices.
No store closures are expected, but executives said the Federal Trade Commission might require the sale of some stores.The newly formed company will be smaller than industry leader Kroger, which operates more than 2,600 supermarkets.
Cerberus acquired Albertsons, its affiliate chains and a stake in Supervalu for $3.3 billion last year. But it failed to match Kroger's $2.4 billion bid for the 227-Harris Teeter chain.
Kroger had expressed interest in acquiring some of Safeway's 1,335 stores. In an earnings conference call with stock analysts earlier Thursday, management declined to address specific acquisition plans.
Edwards said Safeway would accept other bids for 21 days. Asked if there had been interest from other suitors, Edwards declined to comment, but said any offer would have to be for the entire chain. Another suitor would have to pay Cerberus a termination fee of up to $250 million.