‘Round the Trade
Big national news of the moment is Safeway’s decision to sell its Canadian operation to Sobey’s (a unit of Empire Capital Ltd) for $5.7 billion. This long-rumored deal includes 213 supermarkets, 10 liquor stores, 12 manufacturing facilities and four distribution centers. It will also strengthen the Nova Scotia based retailer’s position in Western Canada and will close the gap between Canadian market leader Loblaw (approximately $32 billion in annual sales and roughly 1,050 units) and the newly larger Sobey’s operation, which will have slightly more than 1,500 stores and annual revenue of about $24 million. For Safeway, it’s an opportunity to deploy a healthy return into its infrastructure. New CEO Robert Edwards said the proceeds will be used to pay down $2 billion in debt and repurchase Safeway stock. Some of the proceeds may also be used to invest in other growth opportunities. As I’ve said before, there’s no better growth opportunity for the Pleasanton, CA chain than increasing its cap-ex to significantly upgrade its store base (at least in the Eastern Division) where significant major remodelings could be a game changer. Speaking of the Eastern Division, a tip of the hat to president Steve Neibergall, VP- Rick Stein and the rest of the Safeway team for raising a record amount at this year’s annual Easter Seals golf outing. Despite torrential rain, several hundred golfers persevered the soggy Turf Valley CC course and helped raise $530,000 to sustain Easter Seals programs that support children and adults with disabilities and special needs as well as military veterans and their families…moving assets is Smithfield Foods, the largest pork processor in the U.S., which has agreed to be acquired by China’s Shangui International Holding for $4.72 billion in cash. The deal represents a premium of more than 30 percent over the Smithfield, VA firm’s closing share price when the deal was announced on May 29, and CEO Larry Pope called it “a great transaction for all Smithfield stakeholders, as well as for American farmers and U.S. agriculture,” Based on the emails and phone calls I’ve received in the past three weeks, not everybody is feeling as warm and fuzzy as is Larry. The deal would mark the largest Chinese takeover of a U.S. company to date…. a little farther south, Bi-Lo Holdings, owners of Winn-Dixie and Bi-Lo Foods, has agreed to acquire from Delhaize America 72 Sweetbay stores (plus 10 leases for now closed units), 72 Harveys units and 11 Reid’s Supermarkets for $265 million in cash. For Bi-Lo Holdings, which is controlled by Texas private equity firm Lone Star Funs, the “on paper” opportunity is to expand its market share in Florida to better compete against market leader Publix and the growing presence of Wal-Mart. For parent company Delhaize America, the deal provides an opportunity to dump perennially losing stores and potentially utilize the proceeds to reinvest in its ailing store base. However, what it represents to this reporter is an opportunity for Bi-Lo Holdings/Lone Star to squeeze more cash out of the deal and maximize the value of the real estate. Don’t forget that under Lone Star’s watch, it bankrupted both Bi-Lo and Bruno’s after it bought those southeastern chains from Ahold. As one of our readers noted, “From an operational impact perspective, it’s like trading a deal involving a couple of .220 hitters¸.”…and it was the usual “Happyfest” earlier this month at Wal-Mart’s annual meeting held again this year at the Bud Walton arena at the University of Arkansas in Fayetteville. Musicians Kelly Clarkson, Jennifer Hudson and John Legend performed in front of 14,000 associates, shareholders and other interested parties and even actors Hugh Jackman and Tom Cruise were trotted out to convey a message (trust me, it wasn’t about next quarter’s earnings guidance). Among the business highlights of the meeting was the announcement that the Behemoth has approved a $15 billion buyback of its own stock over the next two years. CEO Mike Duke also addressed the crowd on the subject of the ongoing investigation into its 2004 bribery scandal and the recent garment factory collapse in Bangladesh. Duke noted that integrity has long been a company hallmark and vowed to “do the right thing.” Not all shareholders seemed to believe that Duke’s performance has been of the integrity caliber that he spoke of (Duke was part of the management team that was in the loop on the bribery allegations in Mexico), casting 12.11 percent “against” votes for the chief executive, the lowest number since 1995 when electronic filings for the company were made available by the SEC.