Hostile Takeover Of Safeway May Be Thwarted By ‘Poison Pill’

A hostile takeover of Safeway, the chain of supermarkets, may be impeded by the use of a “poison pill” tactic.

Business can get dramatic sometimes, and Safeway’s hostile takeover involved the accumulation of a significant portion of stock by a group called Jana Partners.

Earlier this week, Jana Partners disclosed in a Securities and Exchange Commission filing that it had acquired more than 6 percent of Safeway’s outstanding stock.

Reuters further reports:

“Jana said it has held talks with Safeway management about reviewing strategic alternatives for the Pleasanton, California-based company and that its shares are undervalued… The hedge fund also said it has spoken with Safeway about exiting lower margin geographies.”

However, there’s a snag in the hostile takeover plan for Safeway in the form of other stock clauses. The chain built in protection to prevent such an occurrence in part, making Safeway a less attractive acquisition overall in the event of such a maneuver.

After Jana made a series of demands to the board, the New York Times reports that Safeway planned to meet in the middle, explaining:

“Safeway responded on Tuesday by highlighting recent strategic initiatives the board had undertaken, including agreeing to sell its Canadian stores and putting Blackhawk through an initial public offering… It said a poison pill had been put in place to ensure it could continue to carry out its strategic plan.”

The poison pill preventing a hostile takeover of Safeway through a large purchase of stock enables existing stockholders to purchase shares at a discounted rate should such a takeover appear likely.