Safeway Inc. agrees to be acquired by Cerberus Capital Management in a 9-billion-dollar deal

Cerberus Capital Management LP and the board of Safeway Inc. have reached an agreement for a takeover of Safeway. The deal is estimated to 9 billion dollars and is known as the latest acquisition of the private equity group, which intends to use the newly-purchased company after the merger with its Albertsons in order to fight the competition of online retailers and big-box stores.

The deal is expected to be finalized during the fourth quarter of 2014 and includes the so-called “go-shop” period, which will last 21 days. It will also provide both Safeway and Alberstons with the opportunity to unite their purchasing capabilities and distribution and by thus, save some money. As reported by the Financial Times, the deal will be financed with 7.6 billion dollars in debt, equity contributions of 1.25 billion dollars and cash.

Cerberus Capital Management will pay around 40 dollars a share for Safeway, including 32.50 dollars in cash. It plans to unite the Albertsons supermarket chain, which has about 1 000 stores, with the 1 300 stores from its latest acquisition of Safeway. The newly-created entity is said to form the third largest grocery retailer by revenues.

Mr. Robert Edwards, who is the Chief Executive Officer of Safeway Inc. said in a conference call, which was cited by Bloomberg: “This merger will improve our competitive position. Our customers will benefit from significant cost saving synergies and a stronger management team.”

After finalizing the deal, the merger between Albertsons and Safeway will end up with a company owning more than 2,400 stores, a total of 27 distribution facilities and 20 manufacturing plants. According to the statement of Safeway, no stores will be closed due to the deal. Mr. Robert Edwards is projected to become the new President and Chief Executive Officer of the entity, whose business will provide jobs for about 250,000 employees. The current Chief Executive Officer of Albertsons – Mr. Bob Miller will be appointed as the Executive Chairman.

Safeway Inc. settled mostly unchanged on Thursday in New York at $39.47 per share, down 0.03% on the day, marking a one-year change of +64.87% and a market capitalization of $9.09 billion. According to CNN Money, the 13 analysts offering 12-month price forecasts for Safeway Inc. have a median target of $40.00, with a high estimate of $46.00 and a low estimate of $14.00. The median estimate represents a +1.34% increase from the previous close.