In In re Safeway Inc., Stockholders Litigation, Saxena White served as co-lead counsel in a case challenging the $9 billion merger of two of the largest grocery store chains in the country, Safeway and Albertson’s. While the private equity fund owner of Albertson’s touted its acquisition of Safeway as offering shareholders an estimated $40 per share in cash and contingent value rights (“CVRs”), the value of the CVRS was far from guaranteed, and the actual economic value of the deal may have resulted in substantially less than $40 per share. As originally conceived, the CVRs issued to Safeway shareholders in the merger would have been contingent on the sale of various Safeway assets after the merger, including its subsidiary Property Development Centers LLC (“PDC”) and Mexico-based grocer Casa Ley. But the terms of the merger agreement ensured that the sale of Casa Ley would be difficult to properly value, while the CVRs connected to PDC could have expired as worthless if PDC was not sold within two years.
After conducting expedited discovery and engaging in contentious settlement discussions, the defendants ultimately agreed to significantly modify the terms of the CVRs. The revised CVRs ensured that Safeway stockholders would receive (i) their pro rata share of the fair value of Casa Ley, based on Casa Ley’s fair value under Delaware law (and not fair market value, which would have included discounts for Safeway’s minority status and for the lack of marketability of Safeway’s interest in Casa Ley), and (ii) their pro rata share of PDC, whether or not PDC was sold within two years. According to a valuation expert consulted in the case, the improvements to the CVRs increased the value paid to Safeway stockholders by at least $164 million, and potentially much more. The settlement also provided for a withdrawal of a stockholders’ rights plan (a “poison pill”) that interfered with potential alternative bids for the Company, along with extensive supplemental disclosures of material information to ensure an informed stockholder vote on the merger.
