Hostile Takeover Threatens Safeway

A hostile takeover threatened Safeway, but the company adopted a plan to prevent it. A hostile takeover can happen when an investor buys a significant amount of stock.

Safeway announced the plan on Tuesday and was rewarded when its shares spiked eight percent to a five-year high.

ABC News reports that the grocer adopted a so-called “poison plan,” which allows current shareholders to purchase more stock at a discounted rate.

The Safeway stock purchases are meant to discourage a takeover by an outside entity. The investor responsible, Jana Partners, disclosed its purchases to the Securities and Exchange Commission later on Tuesday.

Jana Partners explained that it purchased a 6.2 percent stake in the grocer’s outstanding shares. The hedge fund added that it has held several talks with Safeway’s management about strategic alternatives, including a review of markets it currently operates in.

Safeway’s defensive plan to prevent a hostile takeover can be exercised should a person or group buy 10 percent or more of the company’s common stock. It can also be implemented should an institutional investor purchase 15 percent of stock, notes Mercury News.

The grocer also pointed out in yesterday’s announcement that it has undertaken several strategic initiatives to increase stock value for shareholders, including the sale of its Canadian unit. The sale netted $5.7 billion. Safeway also recently held an initial public offering for Blackhawk Network, their gift and prepaid card division.

A centerpiece of Safeway’s fight with big-box stores, drug stores and specialty stores has been its loyalty program. The company offers personalized deals based on a consumer’s past purchases. Despite the attempts, Safeway hasn’t done as well as other grocers, like Kroger.

Sales in the most recent quarter for stores open at least a year rose by 1.2 percent. The same-store sales at Kroger rose by 3.3 percent. Whole Foods saw an even better profit and had a 7.5 percent increase in comparable-store sales. With Safeway’s plan to address a possible hostile takeover, the company’s stock could see even higher numbers on Wednesday.

[Image via Wikimedia Commons]