Credit Suisse pegs Safeway takeover value at $45 per share or more

NEW YORK — Safeway could fetch an asking price of more than $45 per share, estimated Credit Suisse in a research note issued Thursday. 

Shares of Safeway were up slightly by 15 cents to $35.73 in early morning trading.

Responding to a Reuters report on private equity firm Cerberus' interest in the supermarket chain, Credit Suisse research analyst Ed Kelly suggested that a Cerberus-Safeway deal would be compelling for the following reasons: 

• Significant strengthening of local market share. The combined company would be the No. 1 or No. 2 player in 80% of its top 25 markets;


• Significant synergies totaling as much as $1 billion;


• A more rational competitive environment;


• Minimal risk of forced divestitures following the requisite review by the Federal Trade Commission; and


• A built-in exit strategy — the combined entities would be the No. 2 supermarket in the industry, making for an attractive public offering down the road. 

Cerberus currently owns 1,069 supermarkets through the combination of the Albertson's acquisition in 2006 and the Supervalu deal in January 2013. The combined entity would generate $58.6 billion in trailing twelve month sales, according to Credit Suisse estimates. Kroger would be No. 1 with $96.8 billion in sales, and Ahold No. 3 with $26.2 billion. 

"The combination would transform the combined company into a top 2 player in many markets, allow for better leverage of local infrastructure/marketing, improve vendor purchasing and meaningfully reduce corporate costs," Kelly wrote. "History suggests synergies on a transaction of this type could easily amount to 2.5% to 3% of acquired sales."

No matter the outcome of this reported interest, the supermarket industry is ripe for consolidation, Kelly noted. "Both strong, well-positioned players and the weaker companies appear more willing to address the issue of local market scale through acquisitions and divestitures," he said. "This trend should be fueled by the growing strength of industry winners like Kroger, more forward-thinking by underperformers like Safeway and private equity involvement."