Shake-up in the US: Albertsons acquires Safeway

Date : 07 March 2014

Safeway and Albertsons have announced an agreement under which AB Acquisition, which owns Albertsons, will acquire all the outstanding shares of Safeway in a deal worth $9.4bn. This will create the second largest supermarket group in the US, with a diversified network that includes over 2,400 stores, 27 distribution facilities and 20 manufacturing plants.

Click here to view our analysis of the deal, including an overview of both retailers' geographic profiles.

One year since AB Acquisition picked up former Supervalu stores

AB Acquisition is the owner of Albertson's LLC and New Albertson's, Inc., and is controlled by a Cerberus-led investor group. Last March, the group acquired five supermarket chains and almost 900 stores from Supervalu, including the Albertsons, Acme, Jewel-Osco, Lucky and Shaw’s/Star Market banners, which were combined with its existing estate of 200 Albertsons banner stores. Last September it announced the acquisition of United Supermarkets.

Group with sales of around $55bn, over 2,400 stores

The addition of just over 1,300 Safeway stores to the Group’s existing 1,100 stores creates a retailing group of formidable scale, generating sales of around $55bn, and second only to Kroger with just over 2,400 stores in the US, among supermarket groups. However, given the cross-over in operating markets between AB Acquisition and Safeway, there may be divestments required on regulatory grounds, although it was announced that no store closures are expected. Kroger could be a key beneficiary of this process as it is looking to enter new markets where it does not currently have a presence in addition to exploiting in-fill opportunities around its existing stores.

Enlarged group will operate 16 different banners

Bob Miller, Albertsons current Chief Executive Officer, will become Executive Chairman. Robert Edwards, Safeway's current President and Chief Executive Officer, will become President and Chief Executive Officer of the combined company. Following the completion of the deal, the enlarged group will operate 16 different banners including Safeway, Vons, Pavilions, Randalls, Tom Thumb, Carrs, Albertsons, ACME, Jewel-Osco, Lucky, Shaw's, Star Market, Super Saver, United Supermarkets, Market Street and Amigos.

Safeway focused on maximising shareholder returns

Although Safeway has delivered solid results more recently, and has a number of key initiatives in place which support future sales and market share growth, it has to balance this against the key principle of maximising shareholder value. Over recent years the retailer has shown that it is willing to take the strategic decisions to drive value for its shareholders, such as its announcement to withdraw from the Chicago market, and the sale of its Canadian operations to Sobeys.

Safeway offers opportunities for growth

The deal will enable Albertsons and Safeway to implement operational best practices in order to offer customers an enhanced shopping experience and more competitive prices. Realising substantial cost savings will allow for investments that are expected to benefit customers, including price reductions as well as store remodels and refurbishments. Safeway’s network of over 1,300 stores is one of the most modernised in the US, while it also operates one of the most advanced loyalty and personalisation programs in the sector. It also has a presence in the ecommerce channel which provides a foundation for future growth, and a market-leading private label operation, including significant manufacturing facilities. These are all areas which can be leveraged for the benefit of the enlarged group.

Opportunity for other bids to emerge

The merger agreement includes a so-called "go-shop" period of 21 days, during which Safeway, will actively solicit, receive, evaluate and potentially enter into negotiations with parties that offer alternative proposals. If no other proposals emerge, the deal is expected to close in the fourth quarter of this year.