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Safeway Closes Blackhawk Share Allocation

Zacks Equity Research

As expected, Safeway Inc. (SWY) completed the distribution of all the 37.8 million shares of Blackhawk Network Holdings (HAWK) Class B common stock to its shareholders. With this, Safeway moved a step ahead toward the much-hinted closure of its own sellout.

Earlier, on Mar 24, 2014, Safeway declared a special stock dividend to its stockholders of all of the 37,838,709 shares of Class B common stock of Blackhawk Network, representing approximately 94.2% of the total outstanding shares of Blackhawk's Class B common stock and approximately 72.0% of the total number of shares of Blackhawk common stock of all classes outstanding. The dividend was declared with the intention to spin off Blackhawk Network Holdings, Inc. On Feb 19, 2014, Safeway announced its plans to distribute the remaining shares of Blackhawk Network Holdings (that it used to hold) to its shareholders.

Apart from the Blackhawk spin-off, Safeway also revealed its plan to monetize its 49% stake in Casa Ley, the fifth-largest food and general merchandise retailer in Mexico based on sales. According to Safeway, its shareholders are expected to earn $3.65 per share as a result of net proceeds from its primarily non-core assets, Property Development Centers (:PDC) and Casa Ley.

During the fourth quarter and fiscal 2013 earnings call, this supermarket chain for the first time, disclosed its desire to sell out its operations. Accordingly on Mar 6, 2014, the company declared that it will merge with Cerberus Capital Management LP’s Albertsons for a deal valued at approximately $9.0 billion. As per the terms of the agreement, each shareholder of Safeway will receive $32.50 in cash plus $3.65 per share of other contingent consideration and $3.95 per share of Blackhawk, representing a total value of $40.10 per Safeway share.

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According to Safeway, after the closure of the agreement, a diversified network will be formed by Albertsons-Safeway with more than 2,400 stores, 27 distribution facilities, 20 manufacturing plants and 250,000 employees. Safeway is looking forward to this possible sellout/merger which it expects will improve the merged entity's position in the competitive niche.

Safeway currently carries a Zacks Rank #4 (Sell). While the upside potential of the stock is limited, stocks worth considering in the retail/supermarket sector are The Kroger Co. (KR) and Marks & Spencer Group plc (MAKSY), both carrying a Zacks Rank #2 (Buy).

Read the Full Research Report on KR
Read the Full Research Report on SWY
Read the Full Research Report on MAKSY
Read the Full Research Report on HAWK


Zacks Investment Research