Safeway Ditches Canada As Shares Climb Over 30%

After the close Wednesday, Safeway SWY, the food and drug retailer, announced that it has agreed to sell its Canadian business in order to pay down debt and buy back stock. Shares spiked on the news as markets reacted positively to Safeway refocusing on its domestic operations.

Sale Details

Safeway announced that it will sell its Canadian assets to Canadian retailer Sobeys in a deal valued at $5.68 billion, $3.92 billion after taxes. The company plans to use the proceeds to pay down $2.0 billion of debt, with the majority of the remainder to be used to buy back stock. In addition, some of the proceeds may be used to invest in growth opportunities.

"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 Inc. "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."

Buyback

The remaining $1.92 billion in cash proceeds from the deal, after $2 billion that is used to pay down debt, will go towards buying back stock. Shares rose over $30 per share after hours and at current prices, the company could buy back nearly 63 million shares or 26 percent of the market cap.

The transaction has already been approved by the Boards both companies.

Shares Climb

Safeway's stock spiked higher after-hours on the news. Shares rose over 30 percent to $30.50 per share vs. the close of $23.11. Safeway will host a webcast at 4:30 pm, which can be found here.