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Safeway Buy Parallels Sobeys Health Effort

STELLARTON, Nova Scotia — As Sobeys embarks on a major strategic initiative that emphasizes food-focused, fresh-driven offerings, the pending acquisition of Safeway Canada will coincide nicely with that effort, Marc Poulin, president and chief executive officer, told analysts.

Speaking during a conference call to discuss financial results for its corporate parent, Empire Cos., for the fiscal first quarter, Poulin said, "The initiative involving the Sobeys banner obviously predated the acquisition of Safeway, but we made the acquisition knowing very well where we see our future with a food-service format, and we felt this acquisition was obviously very much in line with the future we see for our stores — an evolution of the Sobeys brand that will encourage Canadians to eat better, feel better and do better.


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"So this acquisition makes so much strategic sense — not just for the great assets, great locations and very good management team, but also in terms of a very good alignment of the cultures of both companies."

Poulin said Sobeys expects to integrate the existing management team at Safeway Canada with its own management. "That remains a work in progress, but i can say the talent at Safeway Canada is very welcome into the Sobeys team."

Sobeys announced in June it would pay approximately $5.6 billion (U.S.) to acquire Safeway's 213 Canadian stores, which had sales of $6.5 billion (U.S.) for the 12 months ended March 23. The transaction is scheduled to be completed during the fall.

Poulin reiterated that Sobeys expects to derive nearly $200 million in synergies from the deal, with about half coming during the first year after the acquisition and the balance in the second year.

For the quarter, which ended Aug. 3, net income for the parent company fell 42.6% to $63 million (U.S.), and adjusted net earnings on continuing operations declined 25.5% to $80.1 million. Overall sales rose 2.2% to $4.6 billion, and sales in the food-retailing segment also rose 2.2% — to $4.5 billion — while same-store sales fell 0.1%, which the company said was due to low inflation and increased competitive intensity.

Poulin said comps were weaker early in the quarter but finished stronger.

Paul D. Sobey, president and chief executive officer of Empire, said earnings performance in the quarter was below expectations, reflecting a highly competitive and promotional food retail operating environment and the discontinued operations of Empire Theatres, plus expenses associated with the Safeway acquisition.

Read more: Sobeys to Buy Safeway Canada for $5.8 Billion

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