Cerberus Said to Be Lead Safeway Bidder After Months of Talks

Cerberus Capital Management LP is the lead bidder for Safeway Inc., the U.S. grocery chain that said this week it’s in talks to sell itself, people with knowledge of the matter said.

While other private-equity firms also have expressed interest in buying the second-largest grocery chain in the U.S., they are more interested in cherry-picking assets, people familiar with the situation have said. Safeway is not interested in selling off pieces and would prefer to be sold in its entirety, said the people, who asked not to be identified because the process is private. Cerberus would buy the entire company, the people said.

Cerberus, which owns the Albertsons chain of grocery stores, has been talking to Safeway for months about buying pieces of the retailer or the whole business, said the people. None of Safeway’s other suitors have shown a willingness to pay as much as Cerberus, one of the people said. The New York-based firm can afford to pay more than the other private-equity bidders because it would be able to put the retailer together with Albertsons and get cost savings, the person said.

Safeway has had discussions with firms including CVC Capital Partners Ltd. and Leonard Green & Partners LP about buying some or all of the grocery chain, people have said.

Cerberus and Safeway, whose board doesn’t think it necessarily has to sell the company, are now haggling over the price for the retailer while the other private-equity firms decide if they want to enter a bidding war with Cerberus, one of the people said. Safeway rose 4.3 percent to $36.84 at the close in New York yesterday, for a market value of $8.9 billion.

Albertsons Stores

Last year, a Cerberus-led investor group agreed to acquire Supervalu Inc.’s Albertsons, Acme, Jewel-Osco, Shaw’s and Star Market grocery stores in a transaction valued at about $3.3 billion.

Safeway, based in Pleasanton, California, said Feb. 19 that it’s in talks about a potential sale as it divests some assets and tries to increase revenue.

Brian Dowling, a spokesman for Safeway, didn’t immediately respond to a phone call and e-mail seeking comment. John Dillard, an outside spokesman for Cerberus, declined to comment.

Safeway felt obligated to tell shareholders that it was discussing a sale because management had announced plans to buy back shares, one of the people said, and if it had gone through with the repurchase and a sale eventually happened, shareholders could have sued for tendering shares and missing a takeover premium. If no deal is completed, Safeway will proceed with a share buyback, according to its fourth-quarter earnings conference call this month.

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

Reuters reported earlier that Safeway is in advanced talks with Cerberus to buy the entire company.

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