TORONTO - Supermarket chain operator Empire Co. Ltd. (TSX:EMP.A) is buying the Canadian assets of grocer Safeway for $5.8 billion.
The Nova Scotia-based parent of the Sobeys chain said Wednesday that the cash deal will boost its presence in Western Canada and give it $1.8 billion of real estate.
The transaction to buy Canada Safeway Ltd., which has 213 stores, will be completed through its wholly-owned Sobeys Inc. subsidiary. Included in the transaction are 199 in-store pharmacies and 62 gas stations on the Safeway properties.
“The acquisition allows us to leverage our existing assets and, in turn, positions Sobeys to compete even more effectively within the changing and increasingly competitive grocery retail landscape,” Empire Co. president and CEO Paul Sobey said in a release.
Major U.S. retail players like Walmart (NYSE:WMT) and Target (NYSE:TGT) have been making inroads in Canada with a broad selection of food items in their stores.
Sobeys owns or franchises more than 1,300 stores across Canada under several banners that include Sobeys, IGA, Foodland, FreshCo, and Thrifty Foods.
Safeway Inc. chief executive Robert Edwards told analysts in a conference call that the offer to buy its Canadian operations came directly from Empire Co.
“An auction process was not run and this was an unsolicited offer,” he said.
“We believe that this transaction maximized the value of our Canadian assets.”
In its last financial year, Safeway delivered $6.7 billion in sales.
Empire Co. will also own 10 liquor stores, four distribution centres and 12 manufacturing facilities as part of the deal.
About 60 per cent of the properties are in Vancouver, Calgary, Edmonton and Winnipeg.
Empire’s spun out Crombie real estate investment trust will have the first opportunity to buy any locations the company intends to sell.
Empire expects the transaction to close in the fourth-quarter and immediately add to adjusted net earnings per share. The companies will have cost synergies of $200 million a year within three years, it said.
Stock in Empire, which made the announcement after markets closed, was down 97 cents, or 1.41 per cent, at $67.61 Wednesday on the Toronto Stock Exchange.
I wonder what that means for Safeway in Prince Rupert. Will the store be shut-down? Will it stay as a Safeway or will it convert to a Sobey’s?