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NEW YORK (The Deal) -- Safeway (SWY) could be the latest player to join the wave of consolidating grocery chains after confirming it is considering possible transactions, and sources said they believe it could draw interest from rival Kroger (KR) in addition to various private equity firms.
Pleasanton, Calif.-based Safeway on Wednesday confirmed that it is engaged in discussions regarding a potential sale of the company.
In addition, Safeway revealed plans to pursue strategic options for its 49% stake in Mexican grocery store chain Casa Ley SA and its intentions to distribute its remaining 27.8 billion shares in the Blackhawk Network Holdings Inc. gift card business to shareholders.
The announcement by Safeway, which has been facing shareholder pressure to improve financial results, comes amid increasing deal activity in the grocery and supermarket space over the past couple of years. Among recent deals on the larger side have been Kroger's $3.54 billion acquisition of Harris Teeter Supermarkets Inc. on July 9, representing an enterprise value-to-Ebitda multiple of about 7.33. SuperValu Inc., on Jan. 10, 2013, sold its five retail chains - Albertson's LLC, Acme, Jewel-Osco, Shaw's and Star Market - to an investor group led by Cerberus Capital Management LP for $3.3 billion in cash and assumed debt. More recently, on Sept. 10, Albertson's agreed to buy family-owned Texas grocery chain United Supermarkets LLC. Financial terms weren't disclosed, but one source said at the time that Albertson's likely paid between 6.2 times to 7 times United Supermarket's trailing 12-month adjusted Ebitda. Based on that range and Safeway's $1.58 billion in Ebitda during fiscal 2013, a deal for the chain would be valued between approximately $9.27 billion and $11.06 billion. While Safeway didn't disclose the parties it has already held talks with, Cerberus' name has surfaced in reports that claim it would be interested. Cerberus officials couldn't be reached Thursday. Sources said the pairing between the private equity firm and Safeway would make sense, given Cerberus' success in the space and the opportunity for significant synergies. "Somehow Cerberus has made private equity ownership of supermarkets work pretty well," said John Loeb, a principal at food industry-focused investment bank J.H. Chapman Group LLC, in a phone interview. "They've clearly done a good job with Jewel. They were falling behind in the market, as well." Antony Karabus, president of SD Retail Consulting LLC, said that, in addition to Cerberus and other PE firms, a deal with Kroger could also make sense. "Kroger is fantastic at absorbing companies and they're an unbelievably well-run company," he noted. The announcement is the latest in a string of moves by new CEO Robert Edwards, Safeway's former CFO who replaced Steve Burd in the top spot upon his retirement in May. Only a couple of months ago, Edwards discontinued all operations in the Chicago market and he recently sold the company's Canadian operations, Canada Safeway Ltd., to Sobeys Inc. for C$5.8 billion ($5.22 billion). Though Karabus thinks a sale of the company as a whole is the most likely route, the second-most probable action would be "selling off the pieces that aren't core and focusing all capital investments in the markets that are strongest - in California - so they can get the most upside." Still, given how well the company's stock has done over the past several months, it could be an ideal time to sell, he added. Shares of Safeway, which trade on the New York Stock Exchange as SWY, have surged nearly 70% over the past 12 months. The stock added another 2.05% to finish at $35.30 on Thursday. Despite gains over the past 12 months, the company's value in terms of market capitalization has deteriorated quite a bit in recent years as it has failed to keep up with other grocers in the space. Safeway had $8.5 billion market capitalization as of Feb. 19, but its five-year high of $10.5 billion occurred on April 22, 2010. "Safeway was a national chain that had a cookie-cutter store, but they weren't really ahead of the industry on anything," Loeb said. "They cannot compete with Whole Foods (Market Inc.) and all the aggressive high-quality food stores." Safeway officials didn't return any calls. Kroger officials couldn't be reached.
Stock quotes in this article: SWY, KR
Reuters 
David Goldman/AP You're renting a vehicle, not buying it, but many consumers have likely looked at their bill and wondered if that's really the case. When it comes to rental cars, most consumers know the price they start off with isn't always the price they end up with. A rental includes sales tax, and hopefully everyone knows that if you bring your vehicle back with virtually no gas in it, the company will charge you a premium to fill it up (unless you opted for the prepaid tank option, which can work out unless you return the car with close to a full tank). Extra insurance from the rental car company will also increase your bill. At least the latter expense isn't hidden. Unfortunately, there are other, less-visible add-on fees and unexpected costs that can come with renting a car. We did not name the rental car companies in the following anecdotes, to avoid getting into a he said, company said argument no one will win. An authorization hold. This is the most ominous and devious of fees if you're unaware that it's coming, but rental car companies typically warn consumers at the counter beforehand. Some rental car companies will "hold" an extra few hundred dollars on your credit card or debit card beyond the rental fee price, then credit the money back to you when you hand over the keys. That may be all well and good if you've budgeted for it, but you may run into problems if you find that $200 in your bank account is unexpectedly unavailable. And the hold is only released when you return the keys in theory. If you use a debit card, it may take several more days to get the money back. It's beyond annoying, but there is a valid reason for this practice. The hold is there in case you spill grape juice all over the passenger seat or drive the car into a pile of manure (if you've seen the "Back to the Future" movie series, you know it could happen). Charges for damages. You might be charged even if you weren't the person who damaged the rental car. Charmaine Weems, a government worker in Philadelphia, rented a car for one week in 2011 when her own car was at the mechanic. "The car had cigarette burns in the back," Weems says. "I started to say something to the manager, but I thought because he was the manager, he knew it was there." When Weems returned the car, the staff said she was responsible for the burns and tacked an extra $300 onto her credit card. "I urge everyone to check and go over every dent or marks and burns in their car," Weems says. You'll help your cause even more if you take photos of any damage you see -- and make sure the manager makes the condition of the car clear on the contract. Walt Meyer, a freelance writer and speaker based in San Diego, learned this the hard way. About four years ago, he rented a car for a friend who had bad credit and couldn't rent one on his own. "We listed him as a second driver on the car," Meyer says. They both noticed a large gash in the roof of the vehicle and asked if they could rent another one. No dice. Meyer took photos to prove they rented the car with a gash on it, and his friend drove off. "About two months later, I get a notice from a collection agency saying that I had damaged a rental car, refused to pay and it had been forwarded to them for collections," Meyer says. The bill: $4,000. Meyer eventually got everything straightened out, but it took a lot of phone calls. Your credit may be affected if you use a debit card. Some rental car companies will do a credit inquiry when you rent a vehicle, and if that credit check shows up on your credit report, at least in some cases, according to Dollar Rent A Car's website, it "may have an effect on your credit evaluation." It will probably be a very minimal effect, but if you're hypersensitive about your credit score and rent a lot of cars, it's worth knowing. Cancellation fees. If you line up a rental car and then cancel it, you may be charged a fee, often around $10. If you prepay and don't show up, your money will reappear in your bank account eventually, but the industry standard no-show fee is $50. Higher costs for airport rental cars. As many travelers know, it's almost always more expensive to rent a car at the airport. Some studies and surveys have suggested as much as 25 percent more. So if you're visiting an area for a while, it might be cheaper to pay a taxi or shuttle service to take you to a rental car agency away from the airport. That's a suggestion from Maranda Gibson, who worked at a big-name rental car agency for five years. "It isn't uncommon to see daily rates $10 to $15 cheaper away from the airport," Gibson says. "Another thing to consider is the additional taxes and fees you pay for renting at an airport ... They add up pretty quickly." Upgrading your car for free will cost you. It happens all the time: You reserve an economy car, and the company upgrades you to something bigger and better for no extra charge. That's true, except for what you'll pay in gas. You're probably too happy to be given a bigger car for free to think about that, however. Toll booth fees. Last summer, Dianne Langston, a Realtor based near San Francisco, wanted to buy a new car but didn't want to rush the process, so she and her husband rented a car weekly for about five months. They had a good experience -- at first. "I enjoyed the opportunity to try out different styles of vehicles for an extended period," Langston says. She also had a FasTrack responder, which automatically deducts the cost of toll booths from her credit card. What she didn't know is that many rental car companies use services that charge drivers when they pass through all-electronic, cashless toll booths. Langston didn't catch on right away, partly because the fee charges were separate from the rental car. She racked up at least eight $24.75 charges during her five months of renting cars. Some rental companies offer to charge drivers a fee that allows them to go through tolls without paying, but those can come with per-day charges even if you only go through, say, one toll booth. Plan ahead. That's a plea from Gibson, who was often behind the counter, lining up cars for consumers. "Far too many times, I experienced someone booking a big SUV the day before a holiday and knew that no matter what I did, I was not going to make that vehicle happen for my customer," Gibson says. She suggests booking 24 hours in advance during slow periods and as early as possible if the rental overlaps with a major holiday. If you put some forethought into renting a car, you may avoid making other mistakes, like not budgeting for an authorization hold. Plenty of people rent cars with nary a problem, but if you're careless, you might find yourself wishing you had taken some other mode of transportation -- like traveling the friendly skies. Everyone knows there are never hidden fees when you travel by plane.*
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