General Merchandise/HBC

Albertson's to Acquire Safeway

$9 billion deal would combine second, fifth largest supermarket companies

PLEASANTON, Calif. & BOISE, Idaho -- Safeway Inc. and Albertson's LLC have announced a definitive agreement under which AB Acquisition LLC will acquire all outstanding shares of Safeway. A Forbes report puts the deal at $9 billion. Meanwhile, Cincinnati-based Kroger has reportedly made overtures to acquire parts of Safeway.

Albertson's Safeway

AB Acquisition owns Albertson's LLC and New Albertson's Inc. and is controlled by a Cerberus Capital Management LP-led investor group. Safeway, the second-largest U.S. grocer, will merge with Albertson's, the fifth-largest grocer, which Cerberus bought from SuperValu last year. Kroger is the largest U.S. supermarket chain.

The irony for the Chicago market is that Albertson's owns Jewel, a major rival to Safeway's Dominick's until late last year when Safeway shuttered the Dominick's chain and sold off its locations to several other regional players.

Safeway will sell certain other primarily noncore assets, and distribute shares of prepaid payment provider Blackhawk Network Holdings.

The merger will create a diversified network that includes more than 2,400 stores, 27 distribution facilities and more. No store closures are expected as a result of this transaction.

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. United Supermarkets operates several United Express convenience stores, and most of the chains operate fuel centers.

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

"This transaction offers us the opportunity to better serve customers by adapting more quickly to evolving shopping preferences in diverse regions across the country," said Miller. "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."

Edwards said, "This merger is one of several actions we have taken in recent months as a result of our strategic business review. … Safeway has been focused on better meeting shoppers' diverse needs through local, relevant assortment, an improved price/value proposition and a great shopping experience that has driven improved sales trends."

The merger will enable Albertsons and Safeway to implement operational best practices in order to offer customers an enhanced shopping experience and more competitive prices, as well as store remodels and refurbishments. The diversified network of retail assets, associated distribution centers and manufacturing assets will allow for a broader assortment of products, a more efficient distribution and supply chain, enhanced fresh and perishable offerings and expanded private-label alternatives for customers.

"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. "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."

Safeway Inc., which operates Safeway, Vons, Pavilion's, Randall's, Tom Thumb and Carrs stores, had sales of $36.1 billion in 2013. The company operates 1,335 stores in 20 states and the District of Columbia, 13 distribution centers and more.

Established in 2006, AB Acquisition LLC, which operates ACME, Albertsons, Jewel-Osco, Lucky, Shaws, Star Market and Super Saver, and stores under the United Family of stores, Amigos, Market Street and United Supermarkets, is privately owned by Cerberus Capital Management, Kimco Realty Corp., Klaff Realty, Lubert-Adler Partners and Schottenstein Stores Corp. and operates 1,075 stores and 14 distribution centers in 29 states.

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