After all of those years following Safeway including posts up to Part 74 on the new building it's almost reflexive to post on any news that is Safeway-related. It appears from news reports that Safeway is about to be taken private by Cerberus. The stock has done OK over the last year (NYSE: SWY, low about $22, currently about $37-38), but there must still be some meat on the bone for the private equity guys. There are a couple of PE bloggers who read the Voice--any thoughts?
I'm glad we got the new store done when we did two and half years ago.
No real meat on the Ranchers Reserve bone so to speak, the magic is made with leverage. The more debt you use, the greater the tax deductibility of interest payments and the less you have to put in as an equity investment. Very similar with the mortgage on a house: you deduct interest payments (assume interest only mortgage), only put 20% down as equity, real estate goes up by 20%, you just made 100% return on your equity. The difference is that Cerberus is likely to take dividends out of Safeway with its stable cash flow, further juicing their near term return and lowering the risk of their initial investment.
Also companies that use leverage have less left over to spend on capital improvements so in that sense, it is good that the Burlingame store got renovated when it did.
Posted by: Locavore | February 24, 2014 at 05:46 PM
Thanks, Locavore. I was thinking you might have some salsa to add to this guacamole. Are they under-levered now or is this just a convenient time to throw on unneeded sour cream?
Definitely glad the store got finished before the financial knife comes out. Will those juicy Just4U discounts on the website dry up?
Posted by: Joe | February 24, 2014 at 07:29 PM
Safeway is big, but it could be bigger.
Grocery is a relatively low margin business, and with more economies of scale comes higher margins and stock value.
Safeway is well run and provides a good value to the customer. A Cerberus type of buy out shop is likely to raise prices, and leverage their stronger locations and their relative price inelasticity, like Burlingame.
Posted by: AK | February 25, 2014 at 12:41 PM
There is big news being reported in the WSJ today that the Albertson's/Cerberus takeover of Safeway has been approved by the FTC. The caveat is that they need to sell 168 stores "to address the commission's competition concerns". The companies expect to complete the merger in the next five business days.
One has to wonder if the B'game store is one of the 168 -- or perhaps the Millbrae Monstrosity since the Albertson's is right between them. We will wait and see.
Posted by: Joe | January 28, 2015 at 09:36 PM
Safeway has been in the process of selling stores for some time ahead of the WSJ announcement...
Posted by: Knowledge is power | January 28, 2015 at 10:16 PM
I was wondering about that tidbit, too. The first thing I thought of was that the Albertson's trademark sign is big and IMO frankly unattractive. Too bad, I'd gotten used to the sleek Safeway "S" signs-- at least they'd made an effort to refine their logo each decade or two!
Posted by: Jennifer | January 28, 2015 at 11:12 PM
So is the Millbrae store for sale or not? I need some of this powerful knowledge.
Posted by: up the camino | January 29, 2015 at 07:57 PM
I don't know the details, but I think it's unlikely the Safeway stores up here will be sold. The Albertson's Northern CA stores were sold to Save-Mart a while back, a smallish supermarket operator unrelated to Cerberus/Albertson's (and changed to the Lucky banner). The Albertson's Southern CA stores are owned by Cerberus (also had the rights to name them Lucky in that market) and therefore would have overlap with some Safeway stores (operating as Von's and Pavilions). Seems to me that it's the Southern CA stores that would have to be divested for anti-competitive reasons.
Posted by: Locavore | January 29, 2015 at 09:38 PM