Safeway is leaving the Canadian market.
On Wednesday, the American supermarket chain announced that it has signed a definitive agreement to sell its Canadian operations to wholly owned Empire Company Limited subsidiary Sobeys, a Canadian food retailer, for $5.7 billion. Sobeys will also take on "certain liabilities" as part of its purchase.
Safeway CEO Robert Edwards characterized the sale as motivated by a desire to take advantage of "the higher multiples attributed to Canadian supermarket companies" as compared with U.S. supermarket chains. Edwards noted that the net proceeds from this sale after taxes and expenses -- just under $4 billion -- will be used to pay down some of Safeway's debt and to buy back stock.
Safeway currently has about $6.2 billion in debt on its books (against $357 million in cash). It has more than 237 million shares outstanding, which, at $23.11 apiece, adds up to a market cap of $5.5 billion -- a market cap, though, that is rapidly climbing in the wake of positive investor reaction to news of the sale.
Safeway's sales price works out to a price-to-sales ratio of roughly 0.86 on the $6.7 billion in sales its Canadian operations are expected to bring in this year. That's as compared with the mere 0.13-times-sales valuation Safeway's own stock gets on the stock market -- a significantly "higher multiple," as the CEO noted.
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