Walmart Canada faces emboldened competitor

The Sobey’s chain of food stores, whose parent company counts former Walmart Canada head Dave Ferguson among its board members, has added new square footage to its retail portfolio with the acquisitions of Safeway’s Canadian stores.

The $5.8 billion deal, announced late Wednesday will added Safeway’s 223 stores and 12 manufacturing facilities to Sobey’s existing operation which includes about 1,500 stores under banners such as Sobeys, IGA extra, Thrifty Foods, IGA, Foodland and FreshCo.

Sobey’s is a wholly owned subsidiary of Nova Scotia based Empire Company Limited. Interestingly, Empire’s board include’s Dave Ferguson, the former CEO of Walmart Canada in the late 1990s. Ferguson also ran Walmart European operations from 2000 to 2003. He left the company in 2003 and joined the Empire board in 2006.

The all cash deal will result in net proceeds to Safeway of about $2 billion which will be used to pay down debt while Sobey’s picks up a retail operation that generated sales last year of $6.7 billion in Canadian dollars and a $428 million operating profit.

"We are pleased to enter into this agreement with Sobeys in order to realize the higher multiples attributed to Canadian supermarket companies," said Robert Edwards, president and CEO of Safeway. "The substantial cash proceeds from this transaction will allow us to create value for Safeway stakeholders and contribute to the growth of the ongoing business."

Safeway currently operates 1,415 U.S. stores and 20 manufacturing facilities and last year generated sales of $37.5 billion.

The deal has been approved by the boards of both companies, but it must pass muster with Canada’s Competition Act and is expected to close during the fourth quarter