NEW YORK — Credit Suisse on Tuesday speculated that Safeway may be considering either a sale or acquisition.
"The news around Safeway has been curiously slow in recent months, but the upcoming earnings report could shed some light on the company’s next step," suggested Credit Suisse research analyst Ed Kelly. "While the quarter could disappoint given industry trends, the absence of a debt tender, lack of any sign of a meaningful share repurchase, no detail on the fast approaching analyst meeting and management’s low visibility with investors generally suggests it may in fact be exploring strategic alternatives," he wrote. "Safeway received $4 billion in proceeds from its Canada sale in early November. Its stated use was for debt reduction and share repurchase, yet there has been no debt tender and volume on the stock suggests any repurchase activity has been minimal."
Kelly also noted that a shareholder meeting has been scheduled for early March, but that no detail on that meeting has been provided. "We may be thinking too hard on this one, but the lack of activity is certainly curious given the potential for strategic action," Kelly concluded.
Kelly speculated that an outright sale to Cerberus/Kroger would be the best-case scenario for investors. However, Safeway could be considering the acquisition of certain Cerberus assets. "Don’t laugh, but a Safeway acquisition of Cerberus assets could also make sense," Kelly suggested. "It would accomplish the same result as a sale of Safeway to Cerberus while providing a cleaner, more efficient exit strategy for the private equity firm. The upside to shareholders would be driven through the creation of large synergies, higher earnings power, and the benefit of Cerberus influence/alignment. While complicated and full of questions, we believe the stock would ultimately react well to this alternative."