Shares of supermarket chain Safeway Inc increased after reports that a private equity firm-led buyout was in the works. Although Safeway did not comment on the report, investors continued to be optimistic all through Wednesday. Safeway shares were up almost 9% to USD 35.76 per share in trading early in the afternoon. So far, this has increased the value of the stock by over 80% this year.
Citing unnamed sources, Reuters had reported on Tuesday that private equity firms like Cerberus Capital Management were considering a buyout of the grocery chain. The deal further said that the takeover had the possibility of becoming one of the biggest leveraged buyouts since the economic crisis.
However, an analyst interviewed by Bloomberg Businessweek said Safeway's urgency to sell showed that its core business was rapidly on a decline. Cantor Fitzgerald Analyst Ajay Jain said he found it difficult to reconcile the improvement of Safeway's stock price given the firm's suffering fundamentals.
Jain said, "We feel that the key consideration for the stock right now is whether Safeway can generate enough proceeds from disposals to actually generate incremental value. In this context, we still fail (to) see how the math adds up."
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