Safeway Inc. (SWY) Sells Canadian Operations to Sobey’s for $6B, Shares Soar

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Safeway Inc. (NYSE:SWY) shares soared 27 percent in after hours trading as the company announced that they have entered into an agreement to sell their Canadian operations. The company plans to sell the net assets of Safeway Canada Limited to Sobey’s Inc. for CAD5.8 billion, in cash. Sobey’s Inc. is a Canadian food retailer and wholly-owned subsidiary of Empire Company Limited.


Safeway Inc. (NYSE:SWY) financial details

Total cash proceeds after taxes and expenses are currently estimated to be approximately CAD4 billion. The proceeds are expected to be used to pay down $2 billion of debt to maintain Safeway Inc. (NYSE:SWY)’s current debt ratings, with the majority of the remainder to be used to buyback stock. In addition, some of the proceeds may be used to invest in growth opportunities.

In the trailing 12 months ended March 23, 2013, Safeway Canada’s revenues were CAD6.7 billion. In addition, operating profit was CAD428 million and EBITDA was CAD544 million, both adjusted for intercompany-related transactions. The calculation of EBITDA includes CAD31 million in gains from asset sales, which Sobey’s does not use in their calculations of EBITDA.

Canada Safeway will be accounted for as discontinued operations beginning in the second quarter of 2013. The company says that they will remain responsible for Safeway Inc. (NYSE:SWY) Canada’s CAD300 million public debt due March 2014, and which is expected to be more than offset by cash and other receivables in Canada, but also are not included in the transaction. This transaction allows us to realize the higher multiples attributed to Canadian supermarket companies, and the premium attributed to strong operations.

The substantial cash proceeds of this transaction will allow us to create value for all Safeway stakeholders said Robert Edwards – Safeway Inc – President and CEO on the company conference call. The transaction has been approved by the Boards of Directors of both companies. The transaction is anticipated to close in the fourth quarter 2013, and is subject to customary closing conditions including approval under the Canadian Competition Act.

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