Safeway Says It’s In Discussions on Possible Sale

Safeway Inc. (SWY), the second-largest U.S. grocery-store chain, said it is in discussions about a potential sale of the company as it divests some assets and struggles to increase revenue.

An agreement on a transaction hasn’t been reached, and there is no assurance a deal will be completed, the Pleasanton, California-based company said today in a statement. The retailer also said it plans to distribute its remaining 37.8 million shares of the Blackhawk Network Holdings Inc. (HAWK) gift-card business to Safeway investors and explore ways to monetize its 49 percent stake in Mexican retailer Casa Ley SA.

Safeway has been simplifying its operations and recently sold its 72 Dominick’s stores in the Chicago area after divesting its Canadian business and conducting an initial public offering of Blackhawk in 2013. While the chain has struggled to boost sales amid competition with big-box retailers and organic-food sellers, it still has some locations in middle- to upper-income areas, said Joe Feldman, an analyst at Telsey Advisory Group.

“The quality of those stores is in pretty decent shape,” Feldman, who’s based in New York, said today in an interview. “That’s where people might be interested in it.”

Photographer: Matthew Staver/Bloomberg

Tractor trailers sit near the Safeway Inc. frozen food warehouse at the company's distribution center in Denver, Colorado, on Feb. 13, 2014. Close

Tractor trailers sit near the Safeway Inc. frozen food warehouse at the company's... Read More

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Photographer: Matthew Staver/Bloomberg

Tractor trailers sit near the Safeway Inc. frozen food warehouse at the company's distribution center in Denver, Colorado, on Feb. 13, 2014.

Safeway rose 4 percent to $36 at 4:37 p.m. in late trading in New York. Shares of the company gained 6.3 percent this year through the close of regular trading today, while the Standard & Poor’s 500 Index fell 1.1 percent.

Safeway also today reported that its sales rose 0.2 percent to $36.1 billion last year as U.S. supermarket revenue stagnates. Researcher IBISWorld Inc. in July projected sales at U.S. grocers would increase 0.2 percent to $517.8 billion in 2013 after declining 0.4 percent in 2012.

Rights Plan

In September, Safeway adopted a one-year shareholder-rights plan to thwart any unfriendly takeovers after Jana Partners LLC accumulated a significant amount of stock. Jana owned 4 percent of the company as of Dec. 31, making it Safeway’s fifth-largest investor, according to data compiled by Bloomberg.

Safeway last year sold its Canadian stores to Empire Co. (EMP/A)’s Sobeys Inc. unit for about C$5.8 billion ($5.7 billion). The deal gave the company a jolt of cash while also simplifying its business. Blackhawk in April raised about $230 million after going public and pricing its shares above the marketed range. The stock has since gained 22 percent.

Safeway has about 1,335 stores in the U.S. Kroger Co. (KR), based in Cincinnati, is the largest U.S. supermarket chain.

To contact the reporter on this story: Leslie Patton in Chicago at lpatton5@bloomberg.net

To contact the editor responsible for this story: Nick Turner at nturner7@bloomberg.net

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