Safeway, the second-largest U.S. mainstream grocery store operator, said private equity firm Cerberus Capital Management would acquire the company in a deal valued at about $9.4 billion.
The offer price of $40 per share represents a premium of 1.3 percent to Safeway’s Thursday closing stock price of $39.47 on the New York Stock Exchange.
The deal combines Safeway with Cerberus’ Albertsons chain, creating a dominant grocery franchise on the West Coast. It also creates a grocery network of more than 2,400 stores and 250,000 employees.
No store closures are expected, according to the company.
Safeway’s current CEO, Robert Edwards, will become the CEO of the new combined chain. Bob Miller, Albertsons’ CEO, will become executive chairman.
Safeway shareholders will receive $32.50 per share in cash plus other distributions with a value of $3.65 per share.
The deal is expected to close in the fourth quarter of 2014. If the merger fails, the Albertsons parent company will have to pay Safeway $400 million.
Cerberus is a seasoned investor in the supermarket sector. Last March, a Cerberus-led investor group acquired a group of grocery chains from Supervalu Inc., including Albertsons and Jewel-Osco, for $3.3 billion.
Cerberus previously owned 650 Albertsons locations as a result of a 2006 deal under which the chain was acquired and its stores broken up between the private equity investor, Supervalu and CVS Caremark Corp.
Boise-based Albertsons recently closed two stores in the Tacoma area among seven it shut down in the Northwest region.
The two stores, on Pearl Street in Tacoma and in University Place, had been unprofitable for some time, the company said.
Albertsons also closed down a store in Bothell, another in Vancouver and two in Oregon.
Both local stores had not been remodeled in several years and faced nearby competition from other grocery chains.
Safeway has been in the hands of private equity before. KKR & Co LP took Safeway private in 1986, and then sold its stake in 1999.
Safeway has been trying to streamline its business by selling off noncore units. Last year, it spun off its gift card provider, Blackhawk Network Holdings Inc, into a separate publicly traded company.
It also sold off its Canadian business to the operator of Canadian retailer Sobeys for $5.8 billion in cash.
In October, Safeway revealed plans to leave the Chicago market by early 2014, and shuttered the Dominick’s chain in late 2013. Whole Foods Market bought seven of the Chicago Dominick’s leases.
Before Thursday’s announcement, analysts speculated that the sale of Safeway would reshape the industry, close stores across California and the Southwest, and transform Safeway into a neighborhood grocer that more closely resembles Trader Joe’s.
“The supermarket was built on the principle of, if you’re 8 years old to 80, we carry everything in the store for you,” said Frank Dell, president and chief executive of consulting group Dellmart & Co. and a 30-year industry watcher. “I just don’t see bigger as being better anymore.”
Smaller neighborhood markets that tout locally sourced meat and organic produce and attract customers with friendly service, ambience and one-of-a-kind items are pulling customers away from mainstream supermarkets, experts say.
Even Walmart has pivoted, from big-box to neighborhood market stores — about a quarter the size of its Supercenters — that emphasize groceries. Between discount retailers, drugstores, the local farmer’s market and the Whole Foods or Trader Joe’s around the corner, traditional supermarkets have lost 15 percent of the grocery market, and are expected to cede even more by 2016, according to industry reports.
“At one time, the supermarket was the place to shop four times a week,” Dell said. “Then along came Costco, and along came this little guy named Sam Walton. Then when I see them open a Trader Joe’s ... a line forms around the block.”Reuters, staff writer John Gillie, The Idaho Statesman and the San Jose Mercury News contributed to this report.