WALL STREET JOURNAL.
Safeway to Pay Hedge Funds $44 a Share to Settle Buyout Suits
resolves some, but not all, litigation over $7.6 billion buyout
Customers walk in front of a Safeway store in Denver.
Updated June 2, 2015 6:02 p.m. ET
Safeway Inc. will pay a
group of investment funds about 26% more than other shareholders
received when the grocery chain was sold to private-equity-backed
Albertsons earlier this year for $7.6 billion, a big win for
hedge funds that challenge deals in court.
Albertsons will pay three
funds, which owned about 6% of Safeway stock, $44 a share in cash, or
about $127 million more, as part of a court settlement in a
buyout-related lawsuit, according to people familiar with the matter.
Other shareholders received $34.92 a share when the deal closed in
January. Both groups of investors are still entitled to a portion of
any proceeds Safeway might get from a sale of its stake in a Mexican
The settlement comes in an
appraisal lawsuit stemming from Safeway’s sale to Albertsons, which is
owned by private-equity firm Cerberus Capital Management LP. In
appraisal cases, investors—many of which are hedge funds that buy
their shares on the eve of a takeover—oppose the deal and then sue for
a higher price.
Appraisal cases have risen
sharply over the past two years, particularly among hedge funds
looking for ways to profit from an uptick in corporate mergers.
Results have been mixed. Three recent court rulings awarded
appraisal-seekers exactly the merger price, rather than the bump they
were seeking. Funds can still profit, thanks to accumulated interest
on their claims of around 5.75%, but many have promised their own
investors double-digit returns, according to market participants.
Other large cases are pending
over the buyouts of retailer PetSmart Inc., fruit grower Dole Food Co.
and jewelry chain Zale Corp.
resolves claims brought by investors owned 14 million shares, the bulk
of the 17.7 million shares that had sought appraisal. The settling
investors are Merion Capital LP, a Magnetar Financial LLC-backed
vehicle and a Dutch pension fund, according to people familiar with
the matter and a court filing, which didn’t disclose the financial
terms of the agreement.
Two other hedge funds,
Brigade Capital Management LP and Muirfield Capital Management LLC,
didn’t settle and still own rights to about 3.7 million Safeway
shares, filings show. Their cases are ongoing.
The settlement also
doesn’t resolve lawsuits over whether Safeway’s board fulfilled its
obligation to get investors the highest price possible. Such claims
are typically litigated separately from appraisals, and any payouts
they generate would be shared with all Safeway shareholders.
Albertsons and Cerberus
agreed in March 2014 to buy Safeway
for $32.50 in cash plus contingent consideration tied to the potential
sale of Safeway’s joint ventures and real estate arms. Some of that
has already been paid out to investors, who pocketed $34.92 when the
Albertsons will pay a
group of investment funds $44 per share as part of a settlement of
litigation over the company’s buyout, or about $127 million more than
they would have received in the deal. An earlier version of this story
had the incorrect price-per-share.
Liz Hoffman at