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Acquisition Of Safeway, Inc. By Cerberus Capital Management May Not Be In Shareholders' Best Interests

Stocks in this article: SWY

SAN DIEGO and PLEASANTON, Calif., March 7, 2014 /PRNewswire/ -- Shareholder rights attorneys at Robbins Arroyo LLP are investigating the proposed acquisition of Safeway, Inc. (NYSE: SWY) by the private equity company Cerberus Capital Management. On March 6, 2014, the companies announced the signing of a definitive agreement pursuant to which Safeway shareholders will receive $32.50 per share in cash and additional consideration with an estimated value of $3.65 per share, for a total consideration of $36.15 per share.

Robbins Arroyo LLP. (PRNewsFoto/Robbins Arroyo LLP)

Is the Proposed Merger Best for Safeway and Its Shareholders?

Robbins Arroyo LLP's investigation focuses on whether the board of directors at Safeway is undertaking a fair process to obtain maximum value and adequately compensate Safeway shareholders.  

As an initial matter, the $36.15 merger consideration represents a premium to shareholders of just 6.0% based on Safeway's closing price on February 18, 2014, the last day of trading prior to the announcement that Safeway was in discussions to sell the company. This one day premium is significantly below the average one day premium of over 20% for comparable transactions in the last three years. Further, prior to the announcement of the merger, there were seven analysts with target prices higher than the $36.15 merger consideration, including analysts at Telsey Advisory Group and Wolfe Research, LLC who each set a price of $46.00 on February 20, 2014.

In addition, on February 19, 2014, Safeway released its financial results for the fourth quarter 2013, reporting increases in sales and other revenue as well as gross profit. Specifically, Safeway reported that the company's sales and other revenue reached $11.3 billion in the quarter and its gross profit increased 20 basis points 26.52%.  In announcing the company's result, Safeway's President and Chief Executive Officer Robert Edwards stated, "We are pleased with the progress we made in 2013.… Strategies to grow sales and improve operating profit dollars have begun to produce results. In 2013, we generated our best volume growth since 2006, and we had our best identical-store sales growth in the last five years. At the same time, we continue to pursue strategies to enhance momentum and increase shareholder value. We look forward to continuing progress in 2014."

Given these facts, Robbins Arroyo LLP is examining the Safeway board of directors' decision to sell the company to Cerberus now rather than allow shareholders to continue to participate in the company's continued success and future growth prospects. 

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