Safeway Inc., the second-largest U.S. mainstream grocery store operator, said on Wednesday that it is in talks about a possible sale of the company.
A handful of buyout firms, including Cerberus Capital Management LP, have been exploring a deal for all or part of Safeway, Reuters reported in October.
Cerberus is currently in talks with Safeway about a possible transaction, a person familiar with the matter told Reuters on Wednesday.
The source asked not to be identified because the talks are private. A Safeway spokesperson could not immediately be reached for comment on the talks with Cerberus. Cerberus declined to comment.
Wednesday’s news comes as the operator of chains such as Safeway, Vons and Dominick’s tries to fend off tough competition in the grocery aisle from traditional players such as Kroger Co., warehouse club Costco Wholesale, discounter Wal-Mart Stores Inc. and dollar stores.
Safeway shares trade at about 19.9 times forward earnings, while the larger grocery sector trades at a multiple of 15.2.
On a conference call, Safeway’s chief executive officer, Robert Edwards, declined to give more details on a potential buyout and said he will update investors and analysts on the progress of the related talks at the “appropriate time.”
Safeway also reported a better-than-expected profit in the fourth quarter on Wednesday.
Earnings from continuing operations fell to $100-million
(U.S.) or 35 cents a share in the fourth quarter from $170.7-million or 71 cents a year earlier.
Excluding items, it earned 53 cents a share, beating the analysts’ average estimate of 48 cents a share, according to Thomson Reuters IBES.
Safeway has been trying to streamline its business by selling off non-core units. It spun off its gift card provider, Blackhawk Network Holdings Inc., into a separate publicly traded company, selling a 19 per cent stake. It also sold off its Canadian operations to Empire Co Ltd., the operator of Canadian retailer Sobeys, for $5.8-billion in cash.
Last fall, Safeway also revealed plans to leave the Chicago market by early this year as it continues to narrow its focus.
Also on Wednesday, the company said it has decided to distribute the remaining 37.8 million shares it owns of Blackhawk Network to Safeway shareholders.
Safeway also said “it is an appropriate time” to explore alternatives for its 49 per cent stake in Casa Ley, the fifth-largest food and general merchandise retailer in Mexico.