PLEASANTON, Calif. — Safeway on Wednesday announced that it has entered into an agreement to sell its Canadian operations through a sale of the net assets of Canada Safeway Limited to Sobeys, a Canadian food retailer and wholly-owned subsidiary of Empire Company Limited, for $5.7 billion in cash plus the assumption of certain liabilities.
"We are pleased to enter into this agreement with Sobeys in order to realize the higher multiples attributed to Canadian supermarket companies," stated Robert Edwards, president and CEO of Safeway. "The substantial cash proceeds from this transaction will allow us to create value for Safeway stakeholders and contribute to the growth of the ongoing business."
The transaction has been approved by the boards of directors of both companies. The transaction is anticipated to close in the fourth quarter of 2013 and is subject to customary closing conditions, including approval under the Competition Act in Canada.
The proceeds from this transaction are expected to be used to pay down $2 billion of debt, with the majority of the remainder to be used to buy back stock, Safeway reported. In addition, some of the proceeds may be used to invest in growth opportunities.
In the trailing 12 months ended March 23, Canada Safeway's revenues were $6.6 billion. In addition, Canada Safeway's operating profit was $420.3 million and EBITDA was $534.2 million, both adjusted for intercompany related transactions.
Safeway remains responsible for Canada Safeway's $294.6 million in public debt due March 2014, which is not included in the transaction, and will also retain cash and other receivables in a similar amount in Canada.
For its part, Sobeys gets a strong and immediate presence in the west of Canada with the addition of Safeway's 223 stores, including 199 with in-store pharmacies. Also part of the deal are four distribution centers (Sobeys is both competing with and supplying Target in Canada), 62 gas stations, 10 liquor stores and 12 manufacturing plants.
This story has been updated throughout.
Get connected and follow us on LinkedIn for the most in-depth coverage of drug store news. Join the conversation.