Safeway's shares rose as much as 9 percent on Wednesday on expectations that it may see increased buyout interest for its Canada operations from local grocery chains.
Shares of Pleasanton-based Safeway, the second-largest U.S. supermarket chain, were trading at $19.78 on Wednesday afternoon, after touching a high of $20.57 earlier in the session on the New York Stock Exchange.
BMO Capital Markets analysts noted that the sale of Safeway Canada has been widely discussed for years, but recent actions by Canadian grocer Metro Inc and its larger rival Loblaw Companies Ltd have fueled speculation that they are monetizing assets to boost finances in preparation for a bidding war.
The brokerage cited Tuesday's announcement that grocer Metro was selling off nearly half its stake in Couche-Tard Inc, soon after Loblaw announced plans to spin off most of its property assets into a real estate investment trust.
Metro said on Tuesday it would sell nearly half of its stake in Alimentation Couche-Tard Inc for C$479 million ($482 million), cashing in some of its investment in the gas-bar and convenience store operator.
Loblaw, Canada's largest grocer, had said in December that it plans to spin off the vast majority of its property assets into a real estate investment trust.
"I think (Safeway shares rising) has a bit to do with the speculation about Safeway Canada and if there is an interest to buy it," Gabelli & Co analyst Damian Witkowski said adding that the bidders could either be Metro or Loblaw.
Grocery consolidation in Canada may also be prompted by Wal-Mart's announcement Tuesday that it will invest $450 million to expand its distribution network and open new stores in the country.
U.S. rival Target is also preparing to open its first stores in Canada this spring.