Sobeys buys Safeway Canada in $5.7 billion 'game-changing' deal

Wed Jun 12, 2013 10:52pm EDT
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By Solarina Ho and Euan Rocha

TORONTO (Reuters) - Empire Co Ltd (EMPa.TO: Quote), the operator of Canadian grocery chain Sobeys, said it is acquiring Safeway Inc's SWY.N assets in Canada for $5.7 billion, in a move that will nearly double its reach in the country's western provinces.

The C$5.8 billion deal, Canada's biggest so far this year, resulted in generous premiums for Safeway, which said it would use the proceeds to pay down debt and buy back shares, and its shares shot up 30 percent in after-hours trade.

Empire will gain control of 213 full-service grocery stores, cementing its position as Canada's No. 2 grocer behind Loblaw Companies Ltd (L.TO: Quote) at a time when competition from U.S. retailers Wal-Mart Stores (WMT.N: Quote) and Target (TGT.N: Quote) is heating up.

"We think it is a game changing deal for Empire," said Barry Schwartz, a portfolio manager with Baskin Financial, which owns more than 100,000 shares in Empire.

"This is a huge win for (Empire's) shareholders, and we expect a significant uptick in the stock tomorrow" he said.

Safeway's Canadian arm generated sales of C$6.7 billion and over C$500 million in adjusted earnings before interest, taxes, depreciation and amortization in the 12 months ended March 23.

The deal is expected to boost Empire's earnings immediately following the close of the transaction late this year.

The company expects roughly C$200 million in annual savings within three years following the close of the deal by integrating distribution networks and reducing procurement, administration and marketing costs.   Continued...