Hostile Takeover Averted at Safeway as Grocer Takes 'Poison Pill'

A hostile takeover was averted at Safeway by taking a "poison pill" to prevent an investor from accumulating a significant portion of its stock.  

Safeway's plan to prevent its acquisition involved offering existing shareholders an opportunity to purchase more stock at a discounted rate, which discouraged the outside entity from a hostile takeover.

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The announcement sent the grocer's share price soaring, up 8 percent to a five-year high of $30.99 at Tuesday's close, which year to year is a 71 percent gain for Safeway.

On Tuesday it was learned that the outside entity was the New York City-based hedge fund Jana Partners, which filed with the Securities and Exchange Commission that it had amassed a 6.2 percent stake in Safeway's outstanding shares.

In its filing, Jana Partners said that it "believes the shares are undervalued and represent an attractive investment opportunity," the Associated Press reported.

The hedge fund said it has held and "may continue to have" talks with Safeway's management regarding strategic alternatives, including a review of the markets where it operates and exits lower-margin regions.

Jana Partners, which manages about $5 billion and is run by Barry Rosenstein, generally invests in companies undergoing changes such as mergers, spinoffs and bankruptcies, and is known for pushing management to consider changes, Bloomberg News noted.

Other major companies the hedge fund presently has stake in include the Boeing Co., DirecTV, Zynga Inc., Groupon Inc., among others.

According to a source that spoke to Reuters, Safeway is working with Goldman Sachs to defend the company against a hostile takeover, though the investment bank declined to comment about the possible arrangement on Tuesday.

In June, the California-based retailer sold its supermarket operations in Canada to food retailer Sobeys for $5.7 billion.

Sobeys, a unit of Empire Company Ltd., said the deal includes 213 grocery stores under the Safeway banner in western Canada, 10 liquor stores, 12 manufacturing facilities and four distribution centers.

Safeway presently has approximately 1,400 supermarkets in the U.S., primarily in the western states, where it also operates under store names such as Vons, Randalls and Tom Thumb.

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