Shares of leading food and drug retailer Safeway Inc. (SWY) inched up 0.9% to eventually close at $35.06, following the sale of the company's shopping center and real estate development assets to CA-based Terramar Retail Centers, LLC, for roughly $830 million. These assets previously belonged to Safeway's wholly-owned subsidiary Property Development Centers, LLC (PDC).
Safeway initiated the sale of the PDC-owned assets in connection with its merger with Albertsons that was announced on Mar 6 and is expected to be over in Jan 2015, subject to certain customary closing conditions. Per the agreement, Safeway's shareholders will receive $32.50 per share in cash, once the merger is closed.
Safeway's investors are also supposed to receive a non-transferable contingent value right (CVR) once the merger closes. The CVR pertains to any additional net cash profits that Safeway earned from the sale of PDC assets. Management currently estimates this total amount of CVR to be approximately $29 million, or $18 million net of tax, which will be paid to the stockholders at the rate of 7 cents per share within an estimated period of one year.
With this sellout, Safeway shareholders for PDC will receive a total cash payment of $2.45 per share, of which $2.38 will be paid at the closure of the merger.
In an earlier development, Albertsons and Safeway had agreed upon selling 168 of their stores across eight states of the U.S. to four buyers, in a bid to gain merger approval from the Federal Trade Commission (FTC).
The aforesaid discussions are indicative of the fact that Safeway's management is leaving no stone unturned for timely closure of the merger, due next month.
The merger is expected to result in a powerful diversified corporation within the retail food space, providing stiff competition to potential rivals like The Kroger Co. (KR) and Wal-Mart Stores Inc. (WMT).
Zacks Rank
Currently, Safeway and Kroger hold a Zacks Rank #2 (Buy), while Wal-Mart has a Zacks Rank #3 (Hold). Another stock worth considering in the retail-supermarket industry is Ingles Markets, Incorporated (IMKTA) with a Zacks Rank #1 (Strong Buy).
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