Safeway Creates Poison Pill To Guard Against An Unidentified Investor

Safeway Inc. (NYSE:SWY) has created an anti-takeover provision, also called a poison pill, that will trigger if any investor accumulates more than 10 percent of the company’s stock, reports Tess Stynes for The Wall Street Journal. The specific reasons for taking what is normally a drastic measure are still unclear.

Safeway Creates Poison Pill To Guard Against An Unidentified Investor

Safeway’s mystery investor

Safeway Inc. (NYSE:SWY) announced that it knows about an investor quietly buying up shares, though it did not identify the mystery investor, and said that the poison pill would guarantee the board’s freedom to pursue long-term interests without interference from an activist shareholder. Safeway is planning to sell off its Canadian assets and previously spun-off Blackhawk Network Holdings Inc (NASDAQ:HAWK) in an IPO this year, though it still retains a 73 percent stake in the subsidiary.

Without knowing who is buying stocks in Safeway Inc. (NYSE:SWY), it’s impossible to determine what his or her (or their) interests might be, but clearly the situation has Safeway executives alarmed. A poison pill works by selling new shares of the company once a certain group’s ownership passes a certain threshold. In this case, the thresholds is 10 percent for a person or group, and 15 percent for an institutional investor. The idea is that it becomes more expensive for someone to buy a controlling stake in the company, though it also dilutes the value of existing shares.

Safeway losing money in Canada

Safeway Inc. (NYSE:SWY) has had a tough year, losing money in the Canadian operations that it is now trying to sell, and reporting lower sales last quarter when the rest of the economy was starting to rebound. Its share price dropped after analysts were disappointed with the Q2 results, which may have made it an attractive target for an aggressive investor looking to get in before assets are sold off. Even without the Canadian operations dragging down profits, Safeway has a lot of work to do to satisfy investors, who are starting to see opportunities for strong growth in other sectors.

Safeway Inc. (NYSE:SWY) has provided guidance for an EPS between $1.02 and $1.12 for its stock, up slightly from $0.99 last year, and between $2.25 and $2.45 for Blackhawk Network Holdings Inc (NASDAQ:HAWK), which is at the low end of previous guidance.