Market speculates a Safeway sale; analyst suggests not likely

Credit Suisse's Ed Kelly says the 'interesting development' not a sign

NEW YORK — Trading of Safeway shares on Nasdaq were up almost 75 cents in late morning trading on speculation that Safeway soon may be up for sale.

The speculation is borne out of a recent revision in the company’s change in control that would make retention of management easier and cheaper in a take-out, suggested Ed Kelly, Credit Suisse analyst, in a note published Friday morning. "While this is an interesting development, we do not believe it signals that Safeway is suddenly up for sale."

The changes made by Safeway are not uncommon, Kelly noted — Pepsi made a similar change in 2009. "We do not believe [Safeway] is a good candidate for a take-out by a financial sponsor," Kelly commented. "Supermarket retailing is a structurally challenged industry with thin margins."

In addition, the company has poor sales momentum and is more leveraged than it appears, given a large off-balance sheet multiemployer pension liability, Kelly added. "We also do not see an obvious strategic buyer for the company."

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