Safeway Sold – But Market Remains

Merger with Albertsons creates monster supermarket chain

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Safeway and Albertsons announced last week an agreement to merge, although corporate officials said Safeway will retain its name and probably won’t lay off employees.

Payson Safeway Manager Dan Dillon deflected inquiries to the corporate offices.

The $9 billion merger includes about $7.64 billion in cash and will create the nation’s second largest supermarket chain — after Kroger, which owns Fry’s.

The New York-based investment group led by Cerberus Capital Management owns Idaho-based Albertsons and four other chains including SuperValu and Jewel-Osco.

Pleasanton California-based Safeway has 1,335 stores in 20 states and 138,000 employees.

Albertsons has about 41 stores in Arizona and 2,200 employees.

Safeway has struggled in an intensely competitive marketplace, driven by competition by discount chains like Walmart and even some of the dollar stores and other discount retailers. Fry’s and Walmart have dominated the grocery market in the Valley, where Safeway has about 20 stores. Safeway has in recent years generated less revenue per square foot than its competitors. Many of the chain grocery stores have unions and much better employee benefits than their discount competitors.

Analysts say the merger could save on overhead and give the combined grocery empires more clout and buying power — which could provide more revenue to devote to discounts and services.

Safeway shareholders will likely get about $40 per share from the deal, although its stock did not rise on word of the merger.

Nancy Keane in the Safeway corporate office provided a press release on the merger. The release quoted Albertsons’ Chief Executive Officer Bob Miller saying, “This transaction offers us the opportunity to better serve customers by adapting more quickly to evolving shopping preferences in diverse regions across the country.

“It also brings together two great organizations with talented management teams. Robert Edwards and his team have done an outstanding job in positioning Safeway’s core business for success, by investing in its stores and creating innovative strategic marketing programs that contribute to shareholder value. Working together will enable us to create cost savings that translate into price reductions for our customers. Together, we will be able to respond to local needs more quickly and deliver outstanding products at the lowest possible price, more efficiently than ever before.”

About the combined company

The merger will create a diversified network that includes over 2,400 stores, 27 distribution facilities and 20 manufacturing plants with over 250,000 employees. No store closures are expected as a result of this transaction.

Bob Miller, Albertsons’ current CEO, will become executive chairman. Robert Edwards, Safeway’s current president and CEO, will become president and CEO of the combined company.

Banners will include Safeway, Vons, Pavilions, Randalls, Tom Thumb, Carrs, Albertsons, ACME, Jewel-Osco, Lucky, Shaw’s, Star Market, Super Saver, United Super­markets, Market Street and Amigos.

“Albertsons has successfully transformed underperforming retail grocery stores into strong performers by focusing on enhancing the local customer experience,” said Lenard Tessler, co-head of Global Private Equity and senior managing director at Cerberus, which owns Albertsons.

“Similarly, Safeway has consistently provided outstanding value and customer service throughout the communities it serves. Combining these strong management teams will strengthen the ability of Safeway and Albertsons to deliver on a shared commitment to offering customers higher quality products at lower prices, which will undoubtedly yield positive results for all stakeholders in the business.”

The merger is expected to close in the fourth quarter of 2014 following approval of the merger by Safeway stock holders and regulatory approvals.

Comments

Meria Heller 9 months ago

Albertsons, the most expensive and least appealing store in the Valley. Wish it were Fry's.

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H. Wm. Rhea III 9 months ago

... and PROBABLY won’t lay off employees.

Yeah right - time for Safeway employees to start looking for another job. Albertsons will probably close the store.

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