Cerberus Capital Management agreed to buy Safeway for more than $9 billion and plans to merge it with Albertsons.
Safeway, the second largest grocer in the U.S., will merge with Albertsons, the fifth largest grocer, which Cerberus bought from SuperValu last year, Forbes reports. But this deal may not be in the (brown paper) bag quite just yet.
Kroger in the Shadows
Even if Albertsons and Safeway merge, the combined company would still be slightly smaller than Kroger, the largest grocery retailer in the U.S. For Albertsons, the merger could spell major cost savings. "If they're buying more, they may have pull to get more favorable terms when negotiating with suppliers," Ken Perkins, an analyst at Morningstar told CNNMoney.
Misleading Advertising Litigation
On the same day a deal was reached to merge Safeway with Albertsons, Safeway paid out $2.25 million to settle misleading advertising suits, the San Francisco Chronicle reports.
Considering the breadth of the civil action, involving nine California counties -- Alameda, Fresno, Napa, Sacramento, Solano, Sonoma, Marin, Santa Cruz, and Ventura -- it's most likely that a swift resolution to the protracted litigation was a condition of the merger.
Not too long ago, a judge temporarily blocked The New York Times Co.'s sale of The Boston Globe and The Worcester Telegram & Gazette to Boston Red Sox owner John W. Henry because of an unresolved class action case.
In this case, the multi-million dollar settlement actually did the trick and cleared the way for the merger. But as soon as this Safeway legal row ended, another managed to "crop" up.
Safeway Investors File Suit
Safeway investors are none too pleased with the merger and are reportedly filing suit over the merger, which would cash out each Safeway share at $32.50 -- a total of $7.5 billion.
According to a press release by Rigrodsky & Long, P.A., the firm is investigating potential legal claims by investors against Safeway's board of directors for breaching their fiduciary duty by failing to adequately shop the company around to obtain a higher price target for Safeway stock.
In-house counsel contemplating a merger should pay heed to the case as a cautionary tale: during a merger, carefully review how your board members' fiduciary duty is being perceived by your shareholders.
- Safeway's Low Deal Valuation Is Best It Can Get: Real M&A (Businessweek)
- Return of the MAC: Material Adverse Change Can Break a Deal (FindLaw's In House)
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