The Albertsons’ (AB Acquisition LLC, a unit of Cerberus Capital Management) purchase of Safeway is imminent and final Federal Trade Commission (FTC) approval is expected to be granted by year’s end, according to several sources. Safeway shareholders approved the proposed agreement on July 25.
And, unlike previous estimates that as many as 350 stores may have to be divested due to geographic overlaps, it now appears that only about 140 units (most in the Northwest and Southern California) will have to be spun off. That would leave the new combined entity with about 2,260 stores.
One of the interested parties for those stores is Sam Zell, the Chicago-based real estate billionaire who heads Equity Group Investments.
In an interview with Fox News, Zell stated: “Obviously, like any deal, it starts with the price. In this particular case, this is a $9 or $10 billion merger of Safeway and Albertsons and this is 140 stores that they were forced to divest. So their focus is on getting the big deal done, which creates an opportunistic environment on taking care of the remnants. We have a lot of confidence in the supermarket business. We’ve been in it before, very successfully, and we think this is an interesting opportunity, and a good deployment of capital.”
Also reportedly interested in those to-be divested stores are two other private equity firms – Comvest Partners and Oaktree Capital Management.
Since the deal was announced last March, Albertsons has announced a new management team which will be headed by Albertsons’ Bob Miller as executive chairman and Robert Edwards, Safeway’s CEO, who will now serve as chief executive of the expanded organization.
Other key executives named to the new team are: Shane Sampson, executive VP-marketing and merchandising; Bob Gordon, executive VP and general counsel; Andy Scoggin, executive VP and president of human resources, labor relations, public affairs and government affairs; Jerry Tidwell, executive VP if supply chain and manufacturing; Lee Wilson, executive VP and chief administrative officer; Bob Dimond, executive VP and CFO; Justin Ewing, executive VP of corporate development and real estate; Barry Libenson, interim executive VP and chief information officer (Libenson is expected to be with the new company through March 2015, at which time a successor will be named); Justin Dye, executive VP and chief operating officer for the east region; Wayne Denningham, executive VP and chief operating officer for the south region; and Kelly Griffith, executive VP president and chief operating officer for the north region.
The new company will be comprised of three regions and 14 retail divisions. The company will keep the focus and financial responsibility at the division level, but take full advantage of the expertise, vision and core capabilities of the corporate team. The 14 divisions will be supported by corporate offices in Boise, ID, Pleasanton, CA and Phoenix, AZ. No banner changes are planned.
The division presidents for the new company, who will report to the chief operating officer for their respective regions, will be: Steve Burnham, eastern division, east region; Jim Perkins, Acme division, east region; Jim Rice, Shaw’s division, east region; Mike Withers, Jewel-Osco division, east region; Dennis Bassler, Portland division, north region; Paul McTavish, Denver division, north region; Susan Morris, Intermountain division, north region; Tom Schwilke, northern California division, north region; Dan Valenzuela, Seattle division, north region; Shane Dorcheus, southwest division, south region; Scott Hayes, southern division, south region; Sidney Hopper, Houston division, south region; Lori Raya, southern California division, south region; and Robert Taylor, United division, south region.
“We know the best way to grow our business is to have the highest quality fresh departments, lower prices, clean, well-stocked stores and the best customer service in the market,” said Miller. “Our teams will focus on delivering what customers want locally, and we will give our store teams more flexibility to make decisions that are right for their neighborhoods. The division teams will have the responsibility to have the right assortment for their markets.”
“We’re drawing on the strong talent within both companies to build an innovative, customer-focused and growth-driven company,” said Edwards. “We are confident in this team’s ability to build a great company that’s positioned to win over the long term by earning the loyalty of grocery shoppers in every market we serve and delivering superior operational and financial results.”
Locally, Safeway’s eastern division, which New Albertsons Inc. (another unit of A/B Acquisition and Cerberus) acquired from Albertsons LLC (another subsidiary of the parent firm) for $659 million in June, has already begun preliminary plans to become a more decentralized division The new firm plans to staff up at its 124 store Lanham, MD-based unit by adding category managers to make more relevant and timely local decisions. Sources told us that the new eastern division will ultimately resemble the Acme or Shaw’s model, featuring more aggressive merchandising, “hot” advertising specials and lower everyday prices.
Here’s a recap of the deal:
- Cerberus will pay approximately $9.2 billion ($40.10 per share) to acquire Safeway Stores.
- The breakdown of the deal includes: $32.50 per share in cash; $3.65 per share of the estimated after-tax net proceeds from sales of primary non-core Safeway assets – Property Development Centers (its shopping centers unit) and Casa Ley (the Mexican supermarket chain of which Safeway holds a 49 percent stake). Shareholders will receive either a cash payout by closing or through Contingent Value Rights post-closing; and $3.95 per share which is the estimated value of its 37.8 million shares of Blackhawk, Safeway’s gift card business (which launched an IPO about 18 months ago).
- AB Acquisition plans to fund the deal in part with debt financing of approximately $7.6 billion, equity contributions from its current investors and their affiliates, partners and co-investors of approximately $1.25 billion, and cash on hand of Safeway.
- The newly combined organization promises lower prices, better local assortment, an improved shopping experience and a stronger management team.
- The newly expanded company (prior to the final FTC store divestitures) would operate 2,410 stores (1,075 New Albertsons units and 1,335 Safeway supermarkets) in 34 states and WashingtonDC. Additionally, it would employ 250,000 associates, operate 27 distribution centers and 20 manufacturing plants and operate under the following banners: Safeway, Vons, Pavilions, Randall’s, Tom Thumb, Carrs, Albertsons, Acme, Jewel-Osco, Lucky, Shaw’s, Star Market, Super Saver, United Supermarkets, Market Street and Amigos.
