April 26 (Bloomberg) -- Sobeys Inc., Canada's second- biggest grocery chain, said its founding family agreed to take the company private by paying C$1.06 billion ($950 million) for the 28 percent stake it doesn't already own.

Empire Co., the Sobey family's holding company, will pay C$58 a share for Stellarton, Nova Scotia-based Sobeys, 53 percent higher than its closing price yesterday. The proposed purchase values the company at C$3.8 billion.

The retailer, started 100 years ago as a butcher shop, has 1,300 stores under the Sobeys, Price Chopper and IGA chains.

Sobeys is going private after posting its first drop in net income in five quarters last month. The company has lowered prices to fend off Wal-Mart Stores Inc., which opened seven Canadian supercenters last year, and its stock was down 7.7 percent this year through yesterday.

``Sobeys shares haven't moved that much,'' said Fred Pynn, a Calgary-based investor who helps manage the C$3.5 billion Bissett Canadian Equity fund. ``They're coming out with a pretty full and fair price.'' Pynn sold his Sobeys shares last year.

Sobeys shares jumped C$19.45, or 51 percent, to C$57.25 by the 4 p.m. close of trading on the Toronto Stock Exchange. Empire shares rose C$1.39, or 3.5 percent, to C$41.65.

Shares of rivals also gained. Loblaw increased C$2.60, or 5.2 percent, to C$52.85 while Metro rose C$1.85, or 4.9 percent, to C$39.85.

Sobeys went public in 1998 after it agreed to buy the Oshawa Group, allowing it to expand beyond eastern Canada and triple its revenue.

Theaters, Real Estate

Empire was founded in 1907, when the Sobey family opened its first butcher shop in Stellarton. Sobeys is Empire's biggest asset. Empire also has an interest in 57 movie theaters and owns real estate through the Crombie Real Estate Investment Trust.

Empire increased its holding in Sobeys to 72 percent from 62 percent when Sobeys went public.

``There's little doubt Empire thought it was undervalued for a while,'' said Ken Chernin, an analyst with Beacon Securities Ltd. in Halifax, Nova Scotia. ``Sobeys gave up some profit margin to maintain sales, and they worked hard to keep the market share they captured.''

Competition in Ontario didn't influence the decision to buy out Sobeys, Empire Chief Executive Officer Paul Sobey said on a conference call with analysts.

Same Strategy

Sobeys isn't planning to change its strategy of expanding in Canada with stores that specialize in fresh food, Chief Executive Officer Bill McEwan said.

Sobeys was advised by RBC Capital Markets. Scotia Capital Inc. is Empire's adviser.

Empire hasn't decided how to finance the transaction, Sobey said. ``We have a tremendous amount of flexibility,'' he said.

The company is more likely to sell debt or assets to fund the acquisition than to sell shares, he said.

The transaction is scheduled to be completed in the first two weeks of June and requires approval of more 50 percent of the minority shareholders.

(The companies are holding a conference call on the purchase at 4:30 p.m. Participants can listen in by dialing +1- 800-591-7539 or +1-416-644-3423.)

To contact the reporter on this story: Kevin Bell in Toronto at kbell2@bloomberg.net

Last Updated: April 26, 2007 17:52 EDT