THE WALL STREET
Hedge Funds Plan to Seek Higher Price for Safeway
Hedge Funds Holding About 8% of Grocery-Store Chain Plan to Seek
Higher Price in Court
Customers leave a Safeway store in San Francisco,
Photo: Getty Images
Feb. 2, 2015
4:48 p.m. ET
Hedge funds holding about 8% of Safeway, which was sold
last month for about $7.5 billion, plan to seek a higher price in
court for the grocery-store chain, the latest exercise of an
increasingly popular legal tactic known as
Merion Capital LP has the largest position among the
funds, people familiar with the matter said. Pennsylvania-based Merion
owned 10.5 million shares of Safeway as of Sept. 30, according to a
regulatory filing, or more than 4% of the company.
Magnetar Financial LLC, Muirfield Capital Management
LLC and Brigade Capital Management LP are among the other funds owning
Safeway shares and planning to exercise the rights, some of the people
said. All told, holders of 17.7 million shares—worth about $575
million at the buyout price—have notified the company that they plan
to seek an appraisal, one of the people said.
The dissenting investors have about four months to file
a formal claim. They could also change their mind and accept the
Albertsons, controlled by Cerberus Capital Management
paid $32.50 a share for Safeway,
the country’s second-largest grocery chain by market share. The deal,
which was announced last March, closed Jan. 30 after a
lengthy antitrust review.
In an appraisal, a judge determines the fair value of a
company’s shares at the time of a deal’s closing. Investors also get
paid interest on their stakes while the cases are pending.
In Safeway’s case, the time lag between when the deal
was announced and when it closed could play to appraisal-seekers’
advantage, some of the investors said. Since the deal was announced,
grocery stocks have soared, helped in part by a drop in oil prices
that has put more money in consumers’ pockets. Shares of market leader
Kroger Co. , for example, are up
roughly 90% over the past year. The agreed price for Safeway may also
undervalue its real estate, a person at one of the funds said.
So-called appraisal arbitrage — buying shares of a
company on the brink of a buyout and seeking more in court after the
deal closes — is an increasingly popular hedge-fund strategy. A record
33 such claims were brought in 2014 in Delaware, according to a Wall
Street Journal review of court filings.
Merion, the largest player in appraisal arbitrage, has
about $1 billion under management and is participating in at least
five active cases, including the buyouts of Dole Food Co. and BMC
Historically, most such cases yielded at least small
price bumps. The outcome of the latest crop of filings is unclear as
most are still pending.
Last week, a
judge denied claims by Merion
other funds challenging the price paid in 2012 for family-tree website
Ancestry.com, awarding them the same amount other shareholders
received. The next big test for the strategy is coming later this
month, when a trial is set to begin over Dole’s 2013 buyout.
Liz Hoffman at