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Safeway Settles Suits Over $9.2 Billion Cerberus Buyout

Safeway Inc., the second-biggest U.S. grocery chain, settled investors’ lawsuits challenging Cerberus Capital Management LP’s $9.2 billion buyout by agreeing to turn over proceeds from future real-estate sales.

The promised payouts from the sale of the Casa Ley grocery chain in Mexico and some U.S. real-estate assets may be worth “hundreds of millions of dollars,” in addition to the announced sale price, Mark Lebovitch, a New York-based attorney for the shareholders, said in an interview.

The settlement clears the way for Pleasanton, California-based Safeway to proceed with the $40-a-share sale to New York-based Cerberus, which owns the Albertson’s grocery chain. The private-equity fund is seeking to create a bigger competitor to Kroger Co. (KR), the largest U.S. grocery store owner. Safeway officials announced the settlement earlier today in a statement.

Teena Massingill, a Safeway spokeswoman, didn’t immediately return a call for comment on the value of the settlement to shareholders.

While Safeway officials agreed to resolve investors’ claims, they said in a statement earlier today they still considered investors’ suits challenging the buyout to be “entirely without merit.”

As part of the deal, Safeway investors will receive about $40 a share, consisting of $32.50 in cash, plus stock, valued at about $3.95 a share, in the gift-card unit Blackhawk Network Holdings Inc., company officials said in March. The rest was to come from real estate sales.

2017 Deadline

As part of the settlement of the Delaware suits, Safeway will shorten the deadline by a year to sell its stake in Casa Ley. That means Cerberus will have until 2017 to sell Safeway’s interest in the Mexican grocer, according to court filings.

If the properties aren’t sold by the deadline, shareholders will get the fair-market value of the unsold assets, instead of nothing, Lebovitch said.

Shareholders also stand to receive money from the sale of 24 Safeway properties under the settlement, the lawyer said. Under the original buyout offer, Cerberus would have received those sale proceeds, he said.

The settlement still much be approved by Delaware Chancery Court Judge Travis Laster.

Once the chains are combined, the new company will have between $55 billion and $60 billion in revenue, Scott Mushkin, a New York-based analyst at Wolfe Research, said when the deal was announced in March.

2,400 Stores

The Albertsons-Safeway combination will create a company with more than 2,400 stores, 27 distribution facilities and 20 manufacturing plants.

Kroger, the biggest U.S. chain, has about 2,640 supermarkets under such names as Kroger, Dillons and King Soopers. The Cincinnati-based company also has 786 convenience stores, as well as about 320 jewelry stores and 38 food-processing plants in the U.S.

Cerberus led an investor group last year that bought the Albertsons, Acme, Jewel-Osco, Shaw’s and Star Market grocery stores from Supervalu Inc. in a deal valued at about $3.3 billion.

The case is In re Safeway Inc. (SWY) Stockholders Litigation, CA No. 9445, Delaware Chancery Court (Wilmington).

To contact the reporter on this story: Jef Feeley in Wilmington, Delaware at jfeeley@bloomberg.net

To contact the editors responsible for this story: Michael Hytha at mhytha@bloomberg.net Fred Strasser, Peter Blumberg

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