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Safeway Merges with Albertson's

After a long courtship, private equity giant Cerberus Capital Management agreed to buy Safeway SWY -0.03% for over $9 billion on Thursday afternoon. Safeway, the 2nd-largest grocer in the US, will merge with Albertson’s, the 5th-largest grocer, which Cerberus bought from SuperValu last year. The deal will give Safeway shareholders an estimated $40 per share, including $32.50 in cash. The deal making may not be over soon, though. Kroger KR -0.71%, the country’s largest grocer (nearly twice as large as Safeway by revenue), is reportedly considering making its own offer for its competitor. The company previous outbid Cerberus for the Harris Teeter chain of supermarkets, paying $2.4 billion last summer. (Forbes)


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Chris: The Safeway pension fund was very bloated and underfunded. Safeway figured out that the real estate under and around the stores was worth much more than the core business. Safeway still owns a big percentage of the stores. In fact, it is trying to build shopping centers over in Danville and Walnut Creek.

In many new shopping malls, the anchor stores own the parcel that their store is on. Target does this; Costco and Safeway do it. Then the smaller part of the mall is sold off.

The "suits" in corporate will be making local decisions and the store manager will have very little say.

I'm afraid that this will not work out very well for Safeway employees, shoppers, or the Pacifica community.

Cerberus, the PE shop, will want a return on its $9B investment and it will extract value one way or the other. The mere fact that Safeway was sold indicates that its grocery business hasn't been very profitable, and this means changes will be implemented on the operating side of things; usually, this means slashing employee costs (aka layoffs and benefit reductions), closing locations, selling assets, etc., and my prediction is that the Safeway we know will be a very different thing a few years down the line -- IF it remains open.

Everyone should be shopping at Oceana Market or Pacifica Farmers Market, anyway.

There is a long floating rumor on the street that Kroger's wants to be out west, and that it wanted to purchase Safeway. Maybe it will bid on Raley's now.

Who loses? The consumer. You have to pay off that $9 billion somehow, with benefit and pension cuts and higher prices.

Sprouts Market and ALDI Markets are expanding in California. Also, Walmart Grocery is really starting to expand.

Fresh Market just closed a couple of stores and no one knows what the new owners have planned for Fresh & Easy/Wild Oats.

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