Store Closures Predicted Due to Cerberus’ Purchase of Safeway for $9B

Although Cerberus stated no closures are expected as a result of its merging of Albertsons with Safeway, some analysts predict the transaction will result in duplication, calling for store closures in certain markets.
Jeff Green, Jeff Green Partners

Jeff Green, Jeff Green Partners

An investor group led by Cerberus Capital Management L.P., and which already owns the parent company of Albertsons and several other major grocery retailers, will buy Safeway Inc., of Pleasanton, Calif., for about $9.4 billion, Cerberus announced Thursday. The investor group, AB Acquisition L.L.C., which owns Albertson’s L.L.C. and New Albertson’s Inc., also includes Kimco Realty Corp., Klaff Realty L.P., Lubert-Adler Partners L.P. and Schottenstein Stores Corp.

The merger has already been approved unanimously by Safeway’s board of directors and is expected to close in the fourth quarter, assuming customary closing conditions are met.  Overall, Safeway shareholders are expected to receive total value estimated at $40 per share.

The resulting company will include more than 2,400 stores, 27 distribution facilities and 20 manufacturing plants with more than 250,000 employees.

Bob Miller, Albertsons current CEO, will become executive chairman, and Robert Edwards, Safeway’s current president & CEO, will become president & 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,” Miller said in a release.

The merger will let Albertsons and Safeway implement operational best practices that will lead to “substantial cost savings will allow for investments that are expected to benefit customers, including price reductions as well as store remodels and refurbishments,” according to Cerberus.

Although Cerberus stated, “No store closures are expected as a result of this transaction,” at least one analyst is skeptical.

“It will result in some duplication, Phoenix being one of the markets, so I would expect store closures in those markets,” Jeff Green, president of Jeff Green Partners, Phoenix, told Commercial Property Executive. “Certainly Safeway is the stronger competitor in most markets; Albertsons has struggled in some markets.”

In addition to Albertsons itself, the company operates such major chains as Acme Markets, Jewel-Osco, Osco Pharmacy, Sav-on Pharmacy, Shaw’s, Star Market and United Supermarkets, which Albertsons acquired in September 2013.

Safeway chains include Safeway itself, Pavilions, Randalls, Tom Thumb and Vons. Safeway closed its 72-store Dominick’s chain, in northeastern Illinois, late last year.