Safeway Inc. (NYSE:SWY) announced that it entered a memorandum of understanding (MOU) to settle the class action lawsuit filed on behalf of shareholders who are against the company’s proposed merger with an affiliate of AB Acquisition LLC.

Safeway

Details of Safeway’s MOU

According to Safeway Inc. (NYSE:SWY), the MOU of understanding provides an amendment to the definitive merger agreement to adjust certain provisions of the Casa Ley contingent value rights (Casa Ley) agreement, and the PDC contingent value rights (PDC CVR) agreement.

The food and drug retailer agreed to change the terms of the PDC CVR agreement wherein the holders of the contingent value rights will not receive any value for any assets of Safeway’s shopping center portfolio that remain unsold by the end of the two-year sale deadline period, and instead be entitled to the fair market value on the unsold assets (net of certain expenses, fees and taxes).

Safeway Inc. (NYSE:SWY) also agreed to change the terms of the Casa Ley CVR agreement wherein it will shorten the sale deadline period to three years. If the equity interests of Safeway in Casa Ley remained unsold until the set deadline; the holders of the contingent value rights will be entitled to the determined fair market value and would exclude any minority, liquidity or similar discount regarding such equity interests.

The company also agreed to terminate its stockholder rights plan also known as a “poison pill” effective July 19, 2014. Safeway Inc. (NYSE:SWY) will voluntarily de-list the rights from the New York Stock Exchanges (NYSE), and file a withdrawal of the rights to the Securities and Exchange Commission (SEC).

Safeway believes the class action is “without merit”

Safeway Inc. (NYSE:SWY) emphasized that the claims of the shareholders in the class action lawsuit are without merit, and it intends to vigorously defend itself if the settlement does not resolve the issue.

The company explained its position in a statement. “While Safeway has entered into the memorandum of understanding and an amendment to the definitive merger agreement and has accelerated the expiration date of the stockholder rights plan to June 19, 2014, the settlement will be subject to the approval of the Delaware Chancery Court. Safeway and the Board of Directors of Safeway believe the claims are entirely without merit, and in the event the settlement does not resolve them, intend to vigorously defend these actions.”