$9.2B Merger of Grocery Giants Checks Out

BOISE, ID and PLEASANTON, CA—Days after the Federal Trade Commission gave its final okay, the $9.2-billion merger of grocery giants Albertsons and Safeway has been loaded into bags and the buyers have been handed their receipt. The acquisition of Pleasanton, CA-based Safeway by a Cerberus Capital Management-led investor group creates a network of 2,230 stores, 27 distribution facilities and 19 manufacturing plants across 34 states and the District of Columbia.

"This is a transformative day for both Albertsons and Safeway,” says Albertsons CEO Bob Miller, who now assumes the role of executive chairman at the combined company. “This merger creates a unified, strong organization that is dedicated to bringing a better shopping experience to more customers across the country. Our combined geographic footprint, vast range of brands and products and service-oriented staff will enable us to meet evolving shopping preferences.”

Effective immediately, Safeway president and CEO Robert Edwards assumes these roles for the combined company. It will have its corporate offices in Boise, ID, Pleasanton, CA and Phoenix, and will be comprised of three regions and 14 retail divisions. 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.

Earlier this week, the FTC gave the merger its approval after Safeway and Albertsons agreed to divest 168 stores to four separate buyers. The federal agency had identified 130 markets in the Southwest and West that raised the red flag of antitrust concerns.

As a result of the FTC's decree, a regional grocery chain in northwest Washington State has the potential to become a major West Coast player. One-hundred-and-forty-six of the Safeway and Albertsons stores that the FTC has ordered to be divested will go to Haggen Inc., which currently operates 18 stores in Washington and one in Oregon. Haggen will expand its footprint to Arizona, California and Nevada, while adding more locations in Oregon and Washington, as a result of the divestiture.

Additionally, the FTC said Tuesday that Supervalu Inc. will acquire two Albertsons stores in Washington; Associated Wholesale Grocers Inc. will acquire 12 Albertsons and Safeway stores in Texas; and Associated Food Stores Inc. will acquire eight Albertsons and Safeway stores in Montana and Wyoming. The agency said the Texas stores will likely be operated by RLS Supermarkets LLC under the Minyard Food Stores brand, and that Associated Food Stores will assign its rights in the eight Montana and Wyoming to Missoula Fresh Market LLC, Ridley's Family Markets Inc., and Stokes Inc.

Last month, in preparation for the merger, Safeway and its wholly owned development subsidiary, Property Development Centers LLC, sold substantially all of PDC's assets to Terramar Retail Centers LLC for $830.25 million in cash. Approximately $2.41 of the $34.92-per-share consideration that Safeway shareholders are receiving stems from the PDC sale.

Along with Cerberus, the investor group that has acquired Safeway includes Kimco Realty Corp., Klaff Realty LP, Lubert-Adler Partners LP and Schottenstein Stores Corp. Goldman Sachs and Greenhill & Co. served as financial advisors to Safeway, while Latham & Watkins LLP and the Law Offices of Richard C. Weisberg served as outside legal counsel. Citigroup, Bank of America Merrill Lynch and Credit Suisse served as financial advisors to Albertsons, Cerberus and the investor group. Schulte Roth & Zabel LLP served as lead outside legal counsel to the buyers, while Dechert LLP, Schulte Roth & Zabel and Baker Botts LLP served as outside legal counsel on antitrust matters.