Safeway’s Poison Pill Plan

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Shares in Safeway Inc. (NYSE:SWY) jumped more than 9 percent on yesterday’s market after the company announced that it was instituting a poison pill measure to prevent an acquisition of the company.

Safeway's Poison Pill Plan

The poison pill plan allows shareholders in Safeway Inc. (NYSE:SWY) to buy 1/1000th of a preferred share in the company for $100 if a single shareholder accumulates more than 10 percent of the company. Safeway management said the move is designed to prevent a takeover as the company gets its strategy in place to maximize value.

Safeway value

A Goldman Sachs Group Inc. (NYSE:GS) Report on the poison pill measure did not rate or put a price target on Safeway Inc. (NYSE:SWY) shares. The firm’s stock zoomed past $30 per share on yesterday’s market. Traders seem to have faith in the Safeway Inc. (NYSE:SWY) plan. Now that it’s clear mangers aren’t planning on cashing out any time soon, that faith is bolstered.

The Goldman Sachs Group Inc. (NYSE:GS) report suggests that the Safeway Inc. (NYSE:SWY) site well have been a target of a buyout or a merger. The firm’s value has grown by more than 70 percent so far in 2013, and analysts seem to expect that the retailer will keep growing. If a company bought Safeway Inc. (NYSE:SWY) today it could undervalue the company even if a hefty premium was paid on top of the share price.

Management at Safeway Inc. (NYSE:SWY) made this point in their announcement of the deal. They said that they wanted to destroy the possibility of a takeover because the company wanted to continue to follow its longer-term plan. That plan has at least another year to go now, and the company has the chance to extend the poison pill if it wishes to next year.

Safeway performance

Safeway Inc. (NYSE:SWY) is a food and drug retailer. The company is the second biggest supermarket chain in North America. The company’s growth prospects have been extolled through 2013 and shares have jumped more than 70 percent while the company’s P/E ratio has grown to close to 15.

Safeway Inc. (NYSE:SWY) has sold off under-performing assets and paid off a large chunk of its debt in the recent past, increasing the perceived value of the company. Safeway Inc. (NYSW:SWY) has a long way to go yet, and it may be a prime acquisition target in future. For now, however, the company is looking safe from outside interest.

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