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Sobeys to buy Canada Safeway for $5.7bn

Safeway would use the proceeds of the transaction to pay down $2bn debt.

Sobeys, a wholly-owned subsidiary of Empire Company, has signed an agreement to acquire Canada Safeway for a cash consideration of C$5.8bn ($5.7bn) to improve its presence in Western Canada.

Canada Safeway is part of the US food and drug retailer Safeway.

Under the agreement, Sobeys will acquire 213 full service grocery stores under the Safeway banner in Western Canada; 199 in-store pharmacies, 62 co-located fuel stations, 10 liquor stores, four primary distribution centres and the related wholesale business, and 12 manufacturing facilities.

Sobeys will also assume  certain liabilities of Canada Safeway.

Paul Sobey, president and CEO of Empire Company, said: “The acquisition of Canada Safeway represents an excellent strategic fit, strengthening our presence in Western Canada with the addition of great employees, excellent stores and exceptional real estate.”

Safeway would use the proceeds of the transaction to pay down $2bn of debt, with the majority of the remainder to be used to buy back stock. Part of the proceeds may also be used to invest in growth opportunities.

The acquisition of Canada Safeway will solidify Sobeys’ number position in Canada with pro forma revenue of approximately $24bn.

Robert Edwards, president and CEO of Safeway, said: “We are pleased to enter into this agreement with Sobeys in order to realize the higher multiples attributed to Canadian supermarket companies. The substantial cash proceeds from this transaction will allow us to create value for Safeway stakeholders and contribute to the growth of the ongoing business.”

The transaction, which is subject to regulatory approvals, is expected to close in the fourth quarter of 2013.

Canada Safeway posted sales of approximately $6.7bn and adjusted EBITDA of $513m for the 52-week period ended 23 March 2013.