One of the worst kept retail M&A secrets is now official. Safeway and Albertsons have announced an agreement under which AB Acquisition (Albertsons' owner controlled by Cerberus Capital Management, Kimco Realty, Klaff Realty, Lubert-Adler Partners and Schottenstein Stores Corporation) will acquire all of Safeway's outstanding shares in a deal valued at $40 per share.
"Robert Edwards and his team have done an outstanding job in positioning Safeway's core business for success, by investing in its stores and creating innovative strategic marketing programs that contribute to shareholder value," said Bob Miller, CEO of Albertsons, in a statement. "Working together will enable us to create cost savings that translate into price reductions for our customers. Together, we will be able to respond to local needs more quickly and deliver outstanding products at the lowest possible price, more efficiently than ever before."
The deal, which is expected to close in the fourth quarter this year, will create a company that operates 2,400 stores, 27 distribution centers, 20 manufacturing plants and employs over 250,000 people. No store closings are expected, according to the parties involved in the deal.
Mr. Miller will become executive chairman of the combined company and Safeway's current president and CEO Robert Edwards will continue in the same role with the larger organization. Banners will include Albertsons, Safeway, Vons, Pavilions, Randalls, Tom Thumb, Carrs, Acme, Jewel-Osco, Lucky, Shaw's, Star Market, Super Saver, United Supermarkets, Market Street and Amigos.
The deal between the parties includes a 21-day "go-shop" period in which Safeway will actively solicit and evaluate other bids. Prior to yesterday's announcement, it was widely reported that Kroger, the largest supermarket chain in the U.S., was considering making an offer for parts of Safeway. Kroger is said to be particularly interested in Safeway's business in the Washington, D.C. area, where it now runs Harris Teeter stores, offering only minimal coverage of the market.
Will Safeway and Albertsons become stronger or weaker as result of the merger between the two companies?