Farallon Capital and Safeway
Farallon Capital initiated new positions in Covidien (COV), Hillshire Brands (HSH), and Allergan (AGN). The fund sold its positions in Time Warner Cable (TWC), Dollar General (DG), and SiriusXM Holdings (SIRI). The fund added to its positions in Safeway (SWY) and Coca-Cola Enterprises (CCE), while it lowered its stake in Charter Communications (CHTR) and eBay (EBAY).
Farallon’s position in Safeway accounted for 2.76% of the fund’s portfolio in the first quarter of 2014. The position currently accounts for 3.13% of the 2Q14 portfolio.
Safeway Inc. is one of the largest food and drug retailers in North America. As of September 6, 2014, the company operated 1,326 stores in the Western, Southwestern, Rocky Mountain, and Mid-Atlantic regions of the United States.
Safeway’s merger with Albertsons
On March 6, 2014, grocery store operators Safeway and Albertsons, owned by New York private equity firm Cerberus Capital, announced a merger agreement valued at approximately $9 billion.
Safeway was under pressure by activist investor JANA Partners to explore strategic alternatives. JANA disclosed a 6.2% stake in Safeway back in September. Safeway, the second largest U.S. grocery store chain, adopted a poison pill to counter a hostile takeover.
JANA said in its filing that it had discussions with Safeway management about divesting unprofitable investments and returning more capital to investors. Safeway sold its stores in Canada and Dominick’s stores in Chicago, a subsidiary of Safeway, last year. Newswire noted that Safeway was seeing competition from traditional players such as Kroger (KR), Costco Wholesale (COST), Walmart (WMT), and the Dollar Store.
On February 19, 2014, Safeway was in discussions concerning the possibility of selling the company. Separately, it decided to distribute the remaining 37.8 million shares it owns of Blackhawk Network Holdings, approximately 72.2% of the outstanding Blackhawk shares, to Safeway stockholders.
Blackhawk, a majority-owned subsidiary of Safeway, is a leading prepaid payment network utilizing proprietary technology to offer a broad range of gift cards, other prepaid products, and payment services. Safeway holds 49% of Casa Ley S.A., the fifth largest food and general merchandise retailer in Mexico, based on sales. The company was exploring alternatives to monetize its investment.
Under the terms of the merger agreement with Albertsons, Safeway shareholders will receive cash of $32.50 per share, plus a pro-rata distribution of the net proceeds from the expected sale of real estate development subsidiary Property Development Centers (PDC) and the monetization of Safeway’s 49% equity interest in Casa Ley. Together, the transactions would be valued at an estimated $3.65 per share.
The merged entity will lead the grocery franchise on the U.S. West Coast, and comprise a network of more than 2,400 stores and 250,000 staff, Reuters noted. The deal is expected to close in the fourth quarter.
The next part of the series discusses Farallon’s increased stake in Coca-Cola Enterprises.