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West Face Capital CEO Greg Boland

Tibor Kolley/The Globe and Mail

It is hard to find a corporate transaction these days that does not have an activist agitating on the sidelines.

Tokyo-based Sony Corp. has come under pressure from New York activist Dan Loeb to spin off as much as 20 per cent of its entertainment assets. After a heated proxy-battle, New York oil company Hess Corp. last month agreed to give board seats to Paul Singer and his hedge fund Elliott Management, which is calling for major asset sales.

In Canada the latest example is Safeway Inc.'s decision Wednesday to sell its Canadian grocery chain to Sobey's Inc. for $5.8-billion.

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Lurking behind the curtains on this deal is Canadian activist Greg Boland, who last fall acquired less than a 5 per cent stake in Safeway through his Toronto hedge fund West Face Capital. In a February letter to investors, obtained by The Globe and Mail, Westface explained that the announced resignation last fall of Safeway CEO Steven Burd, a long time opponent of asset sales, opened the door to "a variety of processes to unlock shareholder value."

That's activist-speak for jettisoning valuable assets whose values are not reflected in company stock prices. Corporate breakups have been in the activist game book for years, but the strategy is gaining renewed favour with investors in a market plagued with low yields.

Today the number one target for activists is businesses with admired divisions that are overshadowed by underperforming affiliates that depress stock prices. For activists and yield-hungry investors, selling or spinning off hidden corporate treasures is a so-called "liberalizing event" that releases suppressed values.

Westface's Safeway play is the latest example of this strategy. In its letter to investors last year, Westface described its Canadian chain as one of two "jewel" assets within a struggling grocer. The other prized asset is the company's Blackhawk gift card distributor.

When the Toronto hedge fund acquired its stake, Safeway was trading at about $15 (U.S.) a share on the New York Stock Exchange. This morning the stock was levitating close to $26. This is the stuff of activist dreams.

In an interview, Mr. Boland confirmed that West Face met a number of times with Safeway directors "strongly advocating" for the sale of the Canadian division. He said he and his team last communicated with Safeway officials in January. He said the fund sold its stake in March when the company's stock hit $27, the high end of a range Westface had predicted last fall.

Mr. Boland said Westface had no knowledge of a pending transaction at the time of the stock sale.

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While investors are cheering activist arm-twisters, their presence can make the business of predicting corporate strategy much less predictable.

Analysts at Barclays Capital are eating their words after issuing a report in January that endorsed Safeway's long-standing talking point that "the economics don't work" for a sale of the Canadian division . "We do not think this will happen with the most important being that the proceeds will not be high enough . . . to justify the sale."

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