<p>Safeway Inc. has recently released a proxy statement which details the <b>$9.4 billion sale of the company to private equity firm Cerberus Capital Management LLC</b>, according to the Wall Street Journal. The document provides some interesting behind-the-scenes details of the recent deal.<hr class="legacyRuler"><hr class="legacyRuler"><hr class="invisible minimal-padding"><hr class="invisible minimal-padding">According to the Journal's report, <b>Kroger Co. was the highest bidder</b>, willing to pay as much as <b>$42 per share</b>, pending further due diligence. Even though this was a higher price than what <b>Cerberus offered ($40 per share)</b>, antitrust concerns led Safeway to make a deal with Cerberus instead.<hr class="legacyRuler"><hr class="legacyRuler"><hr class="invisible minimal-padding"><hr class="invisible minimal-padding">Kroger first contacted Safeway bankers at Goldman Sachs on February 20th, regarding the possible purchase of all or part of the company. One week later, executives from both companies met in San Francisco to discuss the possibilities. It was reported that <b>antitrust worries</b> were a large part of the conversation.<hr class="legacyRuler"><hr class="legacyRuler"><hr class="invisible minimal-padding"><hr class="invisible minimal-padding">Kroger and Safeway are the two largest conventional supermarket chains in the US by market share, so any merger deal between the two would likely have resulted in some <b>forced divestitures</b> in order to satisfy antitrust regulations.<hr class="legacyRuler"><hr class="legacyRuler"><hr class="invisible minimal-padding"><hr class="invisible minimal-padding">Though Safeway signed its deal with Cerberus on March 5th, Kroger still had a chance to continue its due diligence during the three-week "go-shop" window. <b>Kroger reportedly did extensive legwork to try to get a deal on the table</b>; it contacted 26 possible buyers of the Safeway stores that would need to be sold in order to get the antitrust clearance. However, in the end, the costs associated with making the <b>divestitures were considered too great</b>, and Kroger did not make a final proposal.<hr class="legacyRuler"><hr class="legacyRuler"><hr class="invisible minimal-padding"><hr class="invisible minimal-padding">As AndNowUKnow has previously reported, once the deal goes through, Kroger will be competing against the Safeway-Albertsons giant. Ignoring possible divestitures, the merged Safeway-Albertsons company will have a <b>combined market share of 5.4%</b> compared with <b>Kroger's 9.6%</b>. <b>Wal-Mart's nearly 30% market share</b> means it is still the largest grocery business, according to Fortune.<hr class="legacyRuler"><hr class="legacyRuler"><hr class="invisible minimal-padding"><hr class="invisible minimal-padding"><a class="btn btn-sm btn-primary col-lg-12" style="white-space: normal;" href="http://www.andnowuknow.com/buyside-news/how-does-safeway-and-albertsons-merger-stack-against-kroger/10971/christofer-oberst" target="_new"> Click Here to View a Footprint Comparison of Safeway-Albertsons and Kroger</a><hr class="legacyRuler"><hr class="legacyRuler"><hr class="invisible minimal-padding"><hr class="invisible minimal-padding">The proxy statement indicates that in order to finance the deal, <b>Cerberus and Albertsons are contributing $1.25 billion of their own money in cash and borrowing the rest.</b><hr class="legacyRuler"><hr class="legacyRuler"><hr class="invisible minimal-padding"><hr class="invisible minimal-padding">Speaking at an investor conference in March, Michael Schlotman, CFO at Kroger, commented on the Safeway-Albertsons deal.<hr class="legacyRuler"><hr class="legacyRuler"><hr class="invisible minimal-padding"><hr class="invisible minimal-padding">"<b>They’ll generate a lot of synergies</b>, but they’re going to be pretty levered. <b>They’re going to have a fair amount of interest expense to cover</b>. So I think it’ll remain to be seen how much net synergy dollars they have left to invest in competitive activities versus giving a return to the equity investors that we’re going to have as well as the debt carry load – the interest on the debt load they have."<hr class="legacyRuler"><hr class="legacyRuler"><hr class="invisible minimal-padding"><hr class="invisible minimal-padding">With Kroger offering some fierce competition, will debt be an impediment to the newly merged Safeway-Albertsons company?<hr class="legacyRuler"><hr class="legacyRuler"><hr class="invisible minimal-padding"><hr class="invisible minimal-padding">Stay tuned to AndNowUKnow for more on this story as it develops.<hr class="legacyRuler"><hr class="legacyRuler"><hr class="invisible minimal-padding"><hr class="invisible minimal-padding"><a class="btn btn-sm btn-primary col-lg-12" style="white-space: normal;" href="https://www.kroger.com/" target="_new"> Kroger </a><hr class="legacyRuler"><hr class="legacyRuler"><hr class="invisible minimal-padding"><hr class="invisible minimal-padding"><a class="btn btn-sm btn-primary col-lg-12" style="white-space: normal;" href="http://www.safeway.com/IFL/Grocery/Home" target="_new"> Safeway </a></p><hr class="legacyRuler"><hr class="invisible minimal-padding"><hr class="invisible minimal-padding">
