Kroger Co. (KR), the largest U.S. supermarket chain, recently approached Safeway (SWY) Inc. about buying part of its operations, people with knowledge of the matter said. The shares of both companies rose.
Kroger also has contacted Cerberus Capital Management LP, the private-equity firm that is the lead bidder for Safeway, about buying some stores that Cerberus may not want, said one of the people, who asked not to be identified because the talks are private. Safeway, the nation’s second-largest grocery chain, would prefer to be sold as a whole, people familiar have said.
A sale to either Cerberus, which owns the Albertsons chain, or Kroger may raise objections from antitrust regulators in select markets, and splitting off some of Safeway’s assets could help address those concerns. Kroger and Cerberus may be able to reach agreement on any of Safeway’s assets that would have to be sold in that case, said one of the people.
A spokesman for Kroger declined to comment. Brian Dowling, a spokesman for Safeway, and Peter Duda, a spokesman for Cerberus, didn’t immediately respond to phone and e-mail messages seeking comment.
Safeway, based in Pleasanton, California, climbed 1.5 percent to $38.02 at the close in in New York, giving the company a market value of $8.8 billion. Kroger, based in Cincinnati, increased less than 1 percent to $41.99, for a market value of $21.7 billion.
Cerberus led an investor group last year that acquired Supervalu Inc.’s Albertsons, Acme, Jewel-Osco, Shaw’s and Star Market grocery stores in a transaction valued at about $3.3 billion. The New York-based buyout firm wants to add Safeway to its portfolio to gain economies of scale and market presence, people familiar with the situation have said.
Private-equity firms CVC Capital Partners Ltd. and Leonard Green & Partners LP also have expressed interest in buying parts of Safeway, people familiar with the matter said last month. Leonard Green and CVC, which jointly own big-box wholesale chain BJ’s Wholesale Club Inc., could team up to do a deal, one of the people said then.
KKR & Co. bought Safeway in 1986 for about $4.3 billion, according to data compiled by Bloomberg. The retailer went public in 1990.
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 gift-card unit Blackhawk Network Holdings Inc.