Safeway Canada Sells Out to Sobey's For $5.7 Billion

Safeway (NYSE:SWY) is selling its entire chain of stores in Canada in an effort to raise cash, the Globe and Mail reported on Wednesday (June 12).

The No. 2 U.S. grocer is selling 213 stores to Sobey's, the No. 2 Canadian grocery chain, for $5.7 billion (US). Most of the Safeway Canada stores are in western Canada, while Sobey's 1,300 stores are concentrated in the east.

The deal, which is expected to close this fall, will net Safeway about $4 billion after taxes, about half of which will go to new retail initiatives, Safeway CEO Robert Edwards said. The rest will be used to pay down debt and buy back stock. He described the buyout as unsolicited and "extremely attractive."

It may be extremely attractive to shoppers in western Canada, too. Heavy competition in the east has pushed prices down, while western Canada is seen as a higher-priced region with little price competition among grocers. With Safeway's distribution infrastructure and sales volume, analysts said Sobey's could bring eastern-style competition to the west.

The combined chains will have annual revenue of about $24 billion (Canadian), compared with about $31 billion for market leader Loblaw. In addition to the 213 grocery stores, Sobey's will get 199 in-store pharmacies, 62 gas stations, 10 liquor stores, four distribution centers and 12 manufacturing sites.

Safeway's Canadian pullout comes as Walmart (NYSE:WMT) and Target (NYSE:TGT) are expanding in Canada. Target in particular has reported that it's having trouble keeping shelves stocked in its grocery department when it opens new stores.

For more:

- See this Globe and Mail story

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