Comment
0
Tweet
0
Print
RSS Feeds

Why Safeway Shares Surged

Friday - 6/14/2013, 2:56pm  ET

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of Safeway were looking fresh today, climbing as much as 19% on word that it would sell its Canadian operations, including 213 stores, to Sobey's for $5.7 billion.

So what: The deal looks like a major win for new CEO Robert Edwards, who came on just a month ago, as Safeway's market value was only $5.5 billion before the news broke. The supermarket chain said the sale proceeds will amount to about $4 billion after taxes, and it will use $2 billion of that money to pay off part of its $5.2 billion debt burden. The rest will go to share buybacks and potential growth opportunities. Only about 13% of Safeway's total locations were north of the border

Now what: Shares were up as much as 30% after hours yesterday after the deal was announced, but steadily fell since then to close out today up just 7.4%. Fitch Ratings was among those throwing cold water on the deal, as it said it would maintain its BBB- credit rating with a negative outlook, pointing out that the Canadian stores brought in a higher profit margin so the sale will hurt profitability. Safeway still faces an uphill battle in the supermarket industry, as retail giants like Wal-Mart and Target continue to focus on groceries, but today's move certainly looks like a smart one.

Don't miss the next update on Safeway. Add the company to your Watchlist by clicking right here.   

This article was originally published as Why Safeway Shares Surged on Fool.com

Copyright © 2009 The Motley Fool, LLC. All rights reserved.