PLEASANTON -- Safeway executives are cashing in stock after speculation about a buyout offer from a New York equity firm, a rumor that has driven shares to record highs over the past week.
The stock-selling spree is another indication that change is simmering at the nation's second-largest grocery chain and confidence among the top ranks in the grocer's future is floundering, according to supermarket industry and business acquisition experts. Amid reports that Cerberus Capital Management is leading a group of private equity firms in a plan to take over Safeway, which operates more than 1,400 stores across the country, analysts have predicted the Pleasanton-based company could be headed for a merger with grocery competitor Albertsons and may soon go private.
Neither Safeway nor Cerberus have confirmed any talks of a deal, which was first reported last week by the news service Reuters. But Wall Street cheered almost immediately, and Safeway's stock has since gone up nearly 9 percent, from $32.90 Tuesday to $35.85 by the close of trading Monday. Since news of the possible buyout, five of Safeway's top executives have sold hundreds of thousands of shares.
Executive Vice President Diane Dietz sold nearly 300,000 shares over three days for a total value of about $10.4 million. On Wednesday, Executive Vice President Larree Renda sold 50,000 shares valued at nearly $1.8 million, and Senior Vice President Jerry Tidwell sold 19,000 valued at about $680,000.
Safeway is considered undervalued by most analysts, although the stock climb triggered by the Cerberus rumor gets the company closer to what they say it ought to fetch -- about $40 a share. But the sales among Safeway's top decision-makers are perplexing, experts say, because if Cerberus were prepared to make a generous offer -- some analysts suggest it could pay $56 a share -- executives ought to hold onto their shares, not dump them. That raises questions about whether a high-priced Cerberus deal will pan out, experts said.
"They're happy to reap whatever they can out of the current stock price and remove the uncertainty if the next announcement is that all of these capital players are abandoning ship," said Bob Reynolds, a retail consultant at Reynolds Economics and former Safeway executive.
But a buyout could be the best thing that has happened to Safeway since the upheaval of the supermarket industry, which has seen heightened competition from regional grocers and discount retailers and an onslaught of mergers and acquisitions, experts said.
"It's a very good match," said Scott Mushkin, an analyst with Wolfe Research. "As we look at the two assets together, we believe they are much more formidable and a much stronger competitor."
If the reported Cerberus deal falls apart, Safeway's worth is likely to plummet. That worry, along with uncertainty over how a merger with Albertsons would affect the company, may be behind the sale of millions of dollars of stock by company executives, some experts said.
"It signals a lack of confidence in Safeway," said Samina Karim, an expert on corporate restructuring and strategy at Boston University. "Maybe Safeway will try to fight this."
The company deflected a hostile takeover by Jana Partners last month after the investing group amassed a significant portion -- 6.2 percent -- of its stock. And in the 1980s, Safeway went private to escape a hostile takeover by the Haft family of Washington, D.C.
But most investors say the Cerberus buyout would protect Safeway from a takeover by a competing grocery company.
"If you're not going to be the one acquiring, someone is looking at you to eat you up," Karim said. "The Safeway name may not stay, but for its operations to be sustained the best thing for Safeway may be this buyout.''
Going private under Cerberus would give Safeway a break from the demands of shareholders and the grind of the quarterly earning report, Reynolds said. With debt and unprofitable stores off its balance sheets, Safeway could come back stronger than ever, he added.
"Someone could repackage (Safeway) and put it out for another IPO and make a ton of money," he said.
Cerberus Capital already has a hand in the supermarket industry, in January acquiring a portion of Supervalu, a grocery chain that includes Albertsons and Jewel Osco. Bringing Safeway into the mix gives the buyout firm more control over the market and a stronger presence in the West Coast, where Safeway has some of its best performing stores. Safeway has assets the other grocers do not -- a popular private label, a loyalty program with almost 6 million members and gas stations. Analysts predict Cerberus would combine Safeway with Albertsons stores as part of the firm's West Coast operations.
The consolidation would "create a super-regional powerhouse out west," Mushkin said.
Contact Heather Somerville at 510-208-6413. Follow her at Twitter.com/heathersomervil.
October stock sales by safeway execs
Diane Dietz, executive vice president
293,000 shares valued at $10,470,220
Robert Edwards, CEO
273,000 shares valued at $9,079,980
Robert Gordon, senior vice president
151,642 shares valued at $5,070,407
Larree Renda, executive vice president
50,000 shares valued at $1,753,000
Jerry Tidwell, senior vice president
44,000 shares valued at $1,505,940
David Stern, senior vice president
5,000 shares valued at $164,750
Russell Jackson, senior vice president
2,824 shares valued at $99,574
Source: Securities and Exchange Commission