PLEASANTON, Calif. — The decision by Safeway to exit its Chicago division was met with positive reactions by several industry analysts after the chain said it would dispose of its 72 Dominick's stores there by early next year, though most doubted it would be able to sell all the stores to other supermarket operators.
Concurrent with the announcement, Safeway said it had already sold four of the Chicago locations to New Albertsons Inc., the Cerberus division that operates Jewel-Osco there.
John Heinbockel, managing director for Guggenheim Securities, New York, said he expects Safeway to be able to sell up to 40 of the 72 stores, generating proceeds between $100 million and $150 million. He also said he sees the divestiture as a positive, since it will eliminate as much as $60 million in annual operating losses.
Chuck Cerankosky, managing director for Northcoast Research, Cleveland, also said he anticipates Safeway will be able to sell 40 or 50 of the stores — with perhaps one operator buying a large number and the rest split among a variety of buyers — at prices ranging from $1 million to $10 million per store. He said sales to multiple buyers is likely "because Dominick's does not have positive cash flow — with EBITDA losses of $2.3 million in 2012 and $11 million for the year to date — which makes it a tougher sell."
Meredith Adler, managing director for Barclays Capital, New York, said the Chicago exit makes sense, especially because it will enable Safeway to realize a cash tax benefit of $400 million to $450 million that will enable it to offset the cash tax expense from the pending sale of its Canada operations to Sobeys. However, exiting Chicago will also generate financial liabilities with the union's multi-employer tax plan, though those liabilities will be amortized over many years, Adler noted.
Karen Short, managing director for Deutsche Bank Securities, New York, said the decision to exit Chicago is "another major step along the path to asset rationalization," with further asset sales a possibility.
"We believe Texas, among other divisions, may be under close scrutiny," she said. Rationalizing underperforming divisions will enable Safeway "to better focus on the markets and regions where it can compete more effectively, especially on the West Coast, which has greater barriers to entry."
Analysts also suggested Safeway should consider selling off its 73% ownership in Blackhawk and selling Casa Ley, its Mexican venture.
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