With new owners, Safeway moves on
Or, perhaps, a new and better chapter for the Pleasanton company that has struggled in the new retail grocery world, caught among the Walmarts, Costcos and dollar stores at one end, upscale brands like Whole Foods at the other, and the Internet in between.
“This merger will improve our competitive position,” said CEO Robert Edwards, when the $9.2 billion deal combining Safeway with Idaho’s Albertsons supermarket chain was announced in March.
None of the 158 Safeway stores in the Bay Area, nor any in Northern California, are closing under the deal, engineered by an investment group led by Albertsons owner Cerberus Capital Management.
“Absent a remedy, this acquisition would likely lead to higher prices and lower quality for supermarket shoppers in 130 communities,” said FTC Chairwoman Edith Ramirez in a statement.
“From the consumer standpoint, this merger is a very good thing, in terms of better product and better store location,” said Helen Bulwik, a partner at Newport Board Group, a retail consultancy with offices in the Bay Area.
In December, Safeway completed the sale of its shopping center and real estate development assets for approximately $830 million to Terramar Retail Centers, a shopping center developer in Southern California.
Not so much for the tens of thousands of Safeway employees who lost their jobs as a result of mass store closings and other cuts.
In this case, Cerberus Capital Management and Cerberus-owned Albertsons are investing $1.25 billion of their own money, with $7.6 billion in debt financing and “cash on hand of Safeway” covering the rest, according to the March statement.
Debt is plentiful, costs are low, and Cerberus is clearly bullish on the supermarket sector, having bought Albertsons and a string of smaller chains in cash and debt from Supervalu, which, like Kroger, was a highly profitable firm.
[...] as my colleague Thomas Lee wrote about the pending merger in March, “private equity’s primary goal — perhaps its only goal — is to make money for its investors ... not necessarily to ensure the survival of Safeway.”