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Firm's history with Albertsons colors its purchase of Safeway

By McClatchy News Services

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The private equity firm that struck a $9.4 billion deal to buy Safeway has proved it's not afraid to make big supermarket purchases — and turn around and make big changes.

In 2006, Cerberus Capital Management bought more than 600 Albertsons grocery stores, including more than 170 in Northern Cali­for­nia. Today, following dozens of store closures and the sale of dozens more, not a single Albertsons is left in Northern Cali­for­nia.

That bloodbath is the first thing that comes to mind for many grocery store labor leaders and industry veterans when they think of Cerberus and what the buyout might mean for the San Francisco Bay Area. Safeway for decades has been the region's dominant supermarket, and the Pleasanton, Calif.-based chain is also one of the largest employers in the East Bay.

(Safeway employs 1,885 workers at 21 stores in Hawaii — 14 on Oahu, four on Maui, two on Hawaii island and one on Kauai. The company is planning to open a second store on Kauai, though it has yet to determine an opening date. It opened its first store in Hawaii in Hono­­lulu in 1964 on Pali Highway.)

"They can do one of two things with Safeway: They can run it like a grocery chain, or they could dismantle it and sell it for profits," said Mike Henneberry, spokes­man for the United Food and Commercial Workers union Local 5, which represents Bay Area Safeway employees. "I'm hoping (the latter is) not the case, but that has not been Cerberus' track record in Northern Cali­for­nia."

Cerberus' deal, announced Thursday, will merge Safeway with Albertsons, which still has stores in Southern Cali­for­nia and other states, to create a grocery conglomerate of 2,400 stores and 27 distribution facilities. The deal is expected to be finalized in the fourth quarter of this year, although other buyers could still make a bid for the company.

After about two decades as an independently run, public grocery company, under the direction of a single chief executive for most of that stretch, Safeway now finds itself under the control of a $25 billion private equity firm from New York.

Albertsons executives have said emphatically there are no plans to close Safeway stores and that business will proceed as usual, but the road ahead is likely to be a bit bumpy. Some stores are expected to close and jobs to be lost, while others may be improved, according to supermarket industry veterans and analysts.

Less than a week after Cerberus took ownership of Albertsons in 2006, the company announced it would close 37 stores in Northern Cali­for­nia, resulting in 2,000 jobs lost.

Although he doesn't expect Cerberus to do to Safeway what it did to Albertsons in 2006, "they could be of a mind to at least bust up a portion of the stores," said Bob Reyn­olds, a grocery industry veteran and analyst with Reyn­olds Economics.

The acquisition poses antitrust problems and needs the approval of the Federal Trade Commission, which may require Cerberus to divest some stores. Competitors such as Trader Joe's and Wal-Mart Stores Inc. will benefit from any closures or sales, industry watchers say. Cerberus, for instance, sold an Albertsons in Walnut Creek, Calif., to Trader Joe's in 2006.

"Kroger, Walmart, WinCo — they're really looking forward to this, and they plan to pick up some market share," said David Livingston, a supermarket industry analyst and market researcher.

Heather Somerville, San Jose (Calif.) Mercury News






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