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03/24/2014

Safeway and Albertsons announce definitive merger agreement

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Safeway Inc., Pleasanton, Calif., and Boise, Idaho-based Albertsons announced a definitive agreement under which AB Acquisition LLC will acquire all outstanding shares of Safeway. The merger agreement was unanimously approved by Safeway’s board of directors.

AB Acquisition is the owner of Albertson's LLC and New Albertson's Inc. (collectively "Albertsons") and is controlled by a Cerberus Capital Management L.P.-led investor group, which also includes Kimco Realty Corp., Klaff Realty LP, Lubert-Adler Partners LP, and Schottenstein Stores Corp., Safeway noted. As a result of the merger, plus other actions to be taken by the Safeway board of directors, Safeway shareholders are expected to receive total value estimated at $40 per share.

"This transaction offers us the opportunity to better serve customers by adapting more quickly to evolving shopping preferences in diverse regions across the country,” said Bob Miller, Albertsons' CEO. “It also brings together two great organizations with talented management teams.

“Robert Edwards and his team have done an outstanding job in positioning Safeway's core business for success,” he added, “by investing in its stores and creating innovative strategic marketing programs that contribute to shareholder value. Working together will enable us to create cost savings that translate into price reductions for our customers. Together, we will be able to respond to local needs more quickly and deliver outstanding products at the lowest possible price, more efficiently than ever before."

Robert Edwards, Safeway’s president and CEO noted that the merger is “one of several actions” the company has taken recently following its strategic business review.

"The combined value of the transactions described above is expected to deliver a premium to Safeway's shareholders of 72 percent from one year ago,” he noted, “and 56 percent over the share price six months ago. Safeway has been focused on better meeting shoppers' diverse needs through local, relevant assortment, an improved price/value proposition and a great shopping experience that has driven improved sales trends.

“We are excited about continuing this momentum as a combined organization,” he added. “We look forward to working with Bob Miller and the rest of the Albertsons team as we proceed together on a path towards becoming an even stronger organization."

Merger provides value for shareholders

Under the merger agreement, Safeway shareholders will receive $32.50 per share in cash, Safeway said. Additionally, shareholders will have the right to receive pro-rata distributions of net proceeds from primarily non-core assets with an estimated value of $3.65 per share.

Safeway said the merger does not alter its previously announced plan to distribute the remaining 37.8 million shares of Blackhawk stock that it owns to its shareholders in mid-April and prior to the completion of the merger completion of the acquisition, and is being undertaken for independent business reasons.

Strength in numbers

The merger will create a diversified network that includes more than 2,400 stores, 27 distribution facilities and 20 manufacturing plants with more than 250,000 employees, Safeway said. No store closures are expected as a result of this transaction.

Miller will become executive chairman, while Edwards will become president and CEO of the combined company. Banners will include Safeway, Vons, Pavilions, Randalls, Tom Thumb, Carrs, Albertsons, ACME, Jewel-Osco, Lucky, Shaw's, Star Market, Super Saver, United Supermarkets, Market Street and Amigos, Safeway said.

The merger will enable Albertsons and Safeway to implement operational best practices that allow them to offer customers an enhanced shopping experience and more competitive prices, while enabling the combined company to pursue industry-leading customer service in an increasingly competitive and dynamic marketplace, Safeway said. Realizing substantial cost savings will allow for investments that are expected to benefit customers, including price reductions as well as store remodels and refurbishments. The diversified network of retail assets, associated distribution centers and manufacturing assets will allow for a broader assortment of products, a more efficient distribution and supply chain, enhanced fresh and perishable offerings, and expanded private label alternatives for customers.

"Albertsons has successfully transformed underperforming retail grocery stores into strong performers by focusing on enhancing the local customer experience," said Lenard Tessler, co-head of global private equity and senior managing director at Cerberus. "Similarly, Safeway has consistently provided outstanding value and customer service throughout the communities it serves. Combining these strong management teams will strengthen the ability of Safeway and Albertsons to deliver on a shared commitment to offering customers higher quality products at lower prices, which will undoubtedly yield positive results for all stakeholders in the business."

The merger is expected to close in the fourth quarter of 2014 following the satisfaction of customary closing conditions, including approval by the holders of a majority of the outstanding shares of Safeway common stock and regulatory approvals including expiration or termination of the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976.

The announcement will be discussed on a conference call with analysts and investors scheduled for March 6 at 5:30 p.m. Eastern Time. The call will be webcast live at www.Safeway.com.