Safeway Inc. (NYSE:SWY), the second largest grocery store chain in the United States, announced an agreement with Canadian food retailer Sobeys, a subsidiary of Empire Company Limited (TSE:EMP.A), for C$5.8 billion ($5.7 billion) in cash.


According to Safeway Inc. (NYSE:SWY), it will use the proceeds from the sale of Canada Safeway Limited to repay $2 billion of debt, and most of the remaining amount will be used to repurchase stock. The company also plans to invest in growth opportunities.

Safeway Inc. (NYSE:SWY) cited that its Canadian subsidiary generated a revenue of C$6.7 billion over the past twelve months that ended in March 23. Its operating profit was was C$428 million and EBITDA was C$544 million (adjusted for intercompany related transactions).

Safeway Inc. (NYSE:SWY) said that it will report the operations of Canada Safeway Limited as discontinued in the second quarter of the current fiscal year. The company also said that it will remain responsible for the C$300 million public debt of its Canadian unit, which is due on March 2014.

Statement of Robert Edwards, President And CEO Of Safeway:

In a statement, Robert Edwards, president and CEO of Safeway Inc. (NYSE:SWY) said, “We are pleased to enter into this agreement with Sobeys in order to realize the higher multiples attributed to Canadian supermarket companies. The substantial cash proceeds from this transaction will allow us to create value for Safeway stakeholders and contribute to the growth of the ongoing business.”

During the company’s conference call with investors and analysts, Edwards said that Empire Company Limited (TSE:EMP.A) directly offered to acquire Canada Safeway Limited. He said, “An auction process was not run, and this was an unsolicited offer.”

Empire Company Limited (TO:EMPa) stated that the transaction will boost its position in Western Canada and it will add C$1.8 in real estate assets. Safeway Canada Limited has 213 stores in the country including 199 in-store pharmacies and 62 gas stations.

Paul Sobey, president and CEO of Empire Company Limited (TSE:EMP.A) said, “The acquisition allows us to leverage our existing assets and, in turn, positions Sobeys to compete even more effectively within the changing and increasingly competitive grocery retail landscape.”

The board of directors of the two companies approved the transaction, which is expected to be completed in the fourth quarter of this year. The deal is subject to customary closing conditions including approvals under Canada’s Competition Act.