Safeway Inc. has entered into an agreement to sell its Canadian operations through a sale of the net assets of Canada Safeway Limited to Sobeys Inc., a Canadian food retailer and wholly-owned subsidiary of Empire Company Limited, for C$5.8 billion in cash, plus the assumption of certain liabilities.
"We are pleased to enter into this agreement with Sobeys in order to realize the higher multiples attributed to Canadian supermarket companies," Robert Edwards, president and chief executive officer of Safeway Inc., said in a press release. "The substantial cash proceeds from this transaction will allow us to create value for Safeway stakeholders and contribute to the growth of the ongoing business."
The proceeds from this transaction are expected to be used to pay down C$2 billion of debt, with the majority of the remainder to be used to buy back stock. In addition, some of the proceeds may be used to invest in growth opportunities. In the trailing 12 months ended March 23, 2013, Canada Safeway's revenues were C$6.7 billion.
Canada Safeway will be accounted for as discontinued operations beginning in the second quarter of 2013. Safeway Inc. remains responsible for Canada Safeway's C$300 million in public debt due March 2014, which is not included in the transaction, and it will also retain cash and other receivables in a similar amount in Canada.
The transaction has been approved by the boards of directors of both companies and is anticipated to close in the fourth quarter of 2013. It is subject to customary closing conditions, including approval under the Competition Act (Canada).