PLEASANTON -- Safeway announced on Thursday it had been bought by private equity firm Cerberus Capital Management in a $9.4 billion deal that will merge the Bay Area's dominant grocery chain with Albertsons, creating a massive chain that promises to further transform how Americans shop for groceries.
By merging Pleasanton-based Safeway with its Boise, Idaho-based Albertsons, Cerberus hopes to cut costs and expand product selection, and compete in a market Safeway and Albertsons have been steadily losing to big-box retailers, convenience stores and niche grocers.
For shoppers, the sale could mean lower prices, as executives pledge to pass cost savings on to the consumer, although some analysts are not so confident. For Safeway employees -- who will be negotiating a new contract with the company later this year -- jobs could be on the line, as antitrust regulations and duplication between the companies may lead to individual store sales and closures.
"As our customers need change, we have to adapt (to) a world where they have more options than ever." Albertsons' Chief Executive Officer Bob Miller, who will become executive chairman of the new supermarket conglomerate, said in a conference call with media.
Last year, Walmart, Target and Costco occupied three of the top-five spots among best-selling U.S. food retailers, joined by Safeway and Kroger, and even 7-Eleven ranked ninth, according to industry publication Supermarket News. Online grocery shopping and delivery has grown, too, and Amazon Fresh launched last year in the Bay Area, delivering food and beverage products from the Web's largest retailer.
Executives said the Safeway sale will help both chains cut costs by combining operations such as distribution. "These are real savings that we'll be able to pass along to our customers," Miller said.
But supermarket analyst David Livingston says shoppers shouldn't get their hopes up for lower prices.
"You aren't going to see them come up with any brand new ideas about how to sell groceries but you are going to see them come up with brand new ideas about how to save on expenses, and increase profits," he said.
Combined, the two supermarket chains will have about 2,400 stores, almost double the size of Safeway today, and just slightly fewer than rival Kroger's roughly 2,600 stores. The merged operation will have about a quarter million employees, 27 distribution centers and 20 manufacturing plants across the country.
Executives said there are no plans to close any Safeway or Albertsons stores. "This combination will improve our ability to respond to increased competition and customers' changing needs," said Safeway Chief Executive Officer Robert Edwards.
But some analysts say there will be so much redundancy that stores will inevitably close. "Obviously you're going to have some closures, because there are stores across the street from each other," Livingston said.
Albertson's also operates Jewel-Osco, Shaw's, Star Market and other grocery chains around the country.
Safeway is the fifth-largest employer in the East Bay, with 7,400 workers there, according to the East Bay Economic Development Alliance. The company has about 250 stores in Northern California, a region where it is the dominant name in the grocery business.
The combined company headquarters will be in Idaho, where Albertsons has its corporate offices. Edwards, who will stay on as president and CEO of the combined company, said he had no immediate plans to make any changes to Safeway's corporate offices in Pleasanton -- but that could change.
"We will operate independently until the transaction closes," Edwards said in the media call, adding that "it's premature to comment on how the business will operate going forward."
Frank Dell, president and chief executive of consulting group Dellmart & Co. and a 30-year industry watcher, said Safeway will likely see more changes than its new sister company, which Cerberus has had at least part ownership of for about eight years.
"For the most part, Albertsons will be running the show," he said, although he added that he doesn't expect widespread closings of Safeway stores.
Mike Henneberry, spokesman for the labor union that represents Bay Area Safeway employees, said employees were notified Thursday but aren't panicking.
"The paychecks are going to continue to arrive," he said. "The deal hasn't been done. We'll deal with it as it comes."
The companies expect the merger to be completed in the fourth quarter, although Cerberus will need much of the year to work out antitrust issues with the Federal Trade Commission. Until then, other companies also have the opportunity to bid for Safeway, as the Cerberus deal includes a so-called go-shop provision to allow Safeway to seek other offers.
Edwards said Safeway had been in talks with Kroger and other industry competitors, but declined to comment further.
Safeway shareholders got a healthy payday out of the deal. The company will pay investors $40 per share, which marks a 72 percent increase over Safeway's stock price a year ago.
Contact Heather Somerville at 510-208-6413. Follow her at Twitter.com/heathersomervil.
Locations: 20 states, primarily in California, the West, Midwest and mid-Atlantic regions.
Headquarters: Boise, Idaho
Locations: 15 states, including California, Colorado, Louisiana and Texas
Source: Company Web sites, Hoover's