Busy Times At Safeway As It Exits Chicago, Draws Cerberus’ Interest

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Over the past year, Wall Street financial analysts have criticized Safeway for not doing more to help increase its stock price. That assessment was primarily targeted toward Burd, who some felt charted a too-conservative course and was slow to seek to maximize shareholder value. Clearly, that perception is changing under Edwards, who joined Safeway as CFO in 2004 and whose background is in finance. With Canada sold and Dominick’s on the route to withdrawal, observers wonder whether weaker performing divisions such as Texas (Randall’s), Southern California (Von’s) or Arizona might be on the block as well. Even Safeway’s profitable Eastern division, based in Lanham, MD, has been mentioned as a region for a potential asset sale because of its geographic isolation from the remainder of the company, despite consistent profitability and many excellent locations.

And Edwards certainly has addressed the undervaluation of Safeway by making quick and decisive moves to increase shareholder value (when Edwards assumed the CEO post on May 14, Safeway shares were trading at $25.45; on October 25 the company’s per share price had jumped to $36.54). Safeway’s board has also authorized a $2 billion share buyback plan.

With private equity back in the acquisition game, the maneuvering has begun, despite Edward’s focus. On September 17, Jana Partners LLC, a Manhattan-based hedge-fund firm that actively seeks corporate change, acquired a 6.2 percent equity stake in the Pleasanton, CA chain. In a regulatory filing after its purchase of Safeway shares, Jana representatives noted they had previously discussed the shedding of some unprofitable regions and returning more capital to investors, with Safeway management.

That same day, Safeway announced the adoption of a one-year stockholder rights plan (“poison pill”). The plan calls for each shareholder to receive one preferred stock purchase right per common share. That purchase right allows existing shareholders to acquire stock in the event an activist investor accumulates a stake of more than 10 percent, or a passive investor buys a position above 15 percent.

Other private equity companies also smell blood and on October 22, numerous industry reports surfaced noting that Cerberus Capital Management LP and perhaps other PE firms are exploring taking a run for all of the big chain which operates about 1,400 supermarkets in the U.S. which has a market value exceeding $8 billion. Safeway has not commented but has retained Goldman Sachs Group as its advisor.