Antitrust Hurdles Pushed Rival Shopper From Safeway

NEW YORK (The Deal) -- Antitrust concerns led an interested suitor to drop its consideration of a rival bid for Safeway (SWY).

Details of the talks that led to Albertson's $9 billion agreement to acquire Safeway were disclosed in the preliminary proxy filed with the Securities and Exchange Commission Friday. The rival suitor, widely presumed to be Kroger (KR), backed out of talks Safeway during the go-shop period after the Albertson's deal was announced Mar 6.

On March 21, 2014, the would-be suitor informed Goldman Sachs (GS), the financial advisor to Safeway's board, that it would not be submitting a bid because the costs associated with making the divestitures likely to be necessary to obtain antitrust clearance made it unwilling to offer a proposal superior to Albertson's. Besting Albertson's bid would not have allowed the potential bidder to realize a sufficient return on its investment, according discussions revealed in the proxy.

Before the Albertson's deal was announced, Deutsche Bank  (DB) analyst Karen Short predicted that Kroger would have to divest 161 stores to win antitrust clearance whereas Albertson's would have to sell only 25.

An antitrust source cautioned that Short and other Wall Street analysts who have made predictions about the possible divestitures generally have overstated the size of the markets that the Federal Trade Commission will examine. Rather than view stores within a broad metro area as overlapping, the agency will consider only stores within close enough proximity to each other to compete for the patronage of the same households.

Albertson's and Safeway officials have shown little concern about the extent of divestitures that the FTC will require. The commission issued a second request for information extending its review of the merger on April 10.

During the lead up to the formal announcement of the deal with Albertson's, there was a great deal of speculation that Safeway would get to choose from two competing bids.

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