Unique Opportunity in Safeway Merger with Albertsons

A UNIQUE OPPORTUNITY
COPYRIGHT© 2015 AVITAL REEM. ALL RIGHTSRESERVED.
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By: Avital Reem 27/1/15

Disclaimer
I have no positions in any stocks mentioned. I
wrote this presentation myself, and it expresses my
own opinions. This presentation is not a
recommendation to buy or sell any of the
companies mentioned.

The Deal
Safeway (SWY) and Albertsons, two of the largest
food and drug retailers in the U.S., announced a
merger on 3/6/14
SWY share will cease trade on NYSE after the
closing
The merger was approved by SWY shareholders
and all relevant regulators

The Deal
On 1/27/15 SWY announced that the closing will be
in 5 business days
SWY share finished the day at 35.15$

Deal Structure
On closing, shareholders will get:
Cash per share Underlying asset
Time
Horizon
32.5$ SWY share Immediately
2.38$ Sale of PDC (SWY real estate company) Immediately
~0.07$
CVR for future cash payments from the sale
of PDC (which already closed)
~1 year
~1-1.4$
CVR for future cash payments from the
planned sale of SWY 49% holdings in Casa
Ley, Mexico’s 5th largest food and general
merchandise retailer
~3 years

Deal Structure
CVRs will be entitled only to shareholders of SWY
registered on closing
The CVRs are non-tradable and non-transferable
If SWY won’t be able to sell Casa Ley in 3 years,
shareholders will receive the “Fair Market Value” of
Casa Ley, which is unknown

Deal Summary
Current price: 35.15$ per SWY share
Future price (couple of weeks) 32.5$ + 2.38$ = 34.88$
per share
CVRs worth ~1.07-1.47$ per share
Estimated pre-tax return: 2.3%-3.4% in 3 years, utilizing
100% equity
Bad Risk-Reward

The Opportunity
Funding Amount (per share) Notes
Bridge loan from the
Bank
34.88$
Loan will be repaid
within weeks, and
backed by SWY shares
Own equity 0.278$
the difference between
35.15$ to 34.88$
Cost of loan 0.0872$
assuming interest rate of
3% a year (very high)
Total equity 0.3752$ Leverage: 98 to 1

The Opportunity
After the closing:
Total investment of 0.3572$ per share
Estimated proceeds of 1.07-1.47$ per share
Time horizon: ~3 years max
Pre-tax return on investment: 200%-300%

Risks
Risk
Sale of 49% holdings
in Casa Ley
Can be at a lower price than the estimate 1$ -1.4$
per share
Casa Ley “Fair Market
Value”
Shareholders will receive unknown value if the
company won’t be able to sell the holdings
PDC CVR value would be less than the estimate 0.07$
General
Taxes
Can significantly reduce after-tax return, depends on
investor’s domicile and investment vehicle

Conclusion
Unique situation
Leverage produces fantastic return
Leverage is almost risk-free
Risks are very low
Potential return is very high
Great risk-reward

Thank you
Avital Reem
avitalreem@gmail.com

Sources
“Safeway and Albertsons Announce Definitive Merger Agreement” -
http://investor.safeway.com/phoenix.zhtml?c=64607&p=irol-newsArticle&ID=1907031
“Safeway Inc. Announces Preliminary Results of 2014 Stockholder Vote” -
“Albertsons and Safeway Receive U.S. FTC Clearance for Proposed Merger” -
“Albertsons and Safeway Complete Merger Transaction” -
Form DFEM14A, 6/19/14 -
http://www.sec.gov/Archives/edgar/data/86144/000119312514241680/d711492ddefm1
4a.htm

Unique Opportunity in Safeway Merger with Albertsons

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