Case4:14-cv-02412-JSW Document1 Filed05/23/14 Page1 of 80
1 FRANCIS M. GREGOREK (144785) [email protected]
2 BETSY C. MANIFOLD (182450) [email protected] 3 RACHELE R. RICKERT (190634) [email protected] 4 MARISA C. LIVESAY (223247) [email protected] 5 WOLF HALDENSTEIN ADLER FREEMAN & HERZ LLP 6 750 B Street, Suite 2770 San Diego, CA 92101 7 Telephone: 619/239-4599 Facsimile: 619/234-4599 8 Attorneys for Plaintiff 9
10 UNITED STATES DISTRICT COURT
11 NORTHERN DISTRICT OF CALIFORNIA OAKLAND DIVISION
12
13 BARBARA TEMPLETON, on Behalf of Herself Case No. and All Others Similarly Situated, 14 Plaintiff, CLASS ACTION COMPLAINT FOR 15 v. VIOLATIONS OF THE SECURITIES EXCHANGE ACT, SELF-DEALING, 16 SAFEWAY INC.; ROBERT L. EDWARDS; T. AND FOR BREACH OF FIDUCIARY GARY ROGERS; WILLIAM Y. TAUSCHER; DUTIES 17 MOHAN GYANI; ARUN SARIN;
18 JANET E. GROVE; FRANK C. HERRINGER; KENNETH W. ODER; GEORGE J. MORROW;
19 AB ACQUISITION LLC; ALBERTSON’S HOLDINGS LLC; 20 ALBERTSON’S LLC; SATURN ACQUISITION MERGER SUB, INC.; and CERBERUS 21 CAPITAL MANAGEMENT L.P.,
22 Defendants
23
24
25
26
27
28
CLASS ACTION COMPLAINT
Case4:14-cv-02412-JSW Document1 Filed05/23/14 Page2 of 80
1 SUMMARY OF THE ACTION 2 1. Plaintiff Barbara Templeton (“Plaintiff”) brings this shareholder class action
3 for herself, and on behalf of all similarly situated holders of Safeway Inc. (“Safeway” or the 4 “Company”) common stock against Safeway, the members of the Company’s Board of Directors
5 (the “Board” or the “Individual Defendants”), AB Acquisition LLC (“AB Acquisition”),
6 Albertson’s Holdings LLC (“Albertson’s Holdings”), Albertson’s LLC (“Albertson’s LLC”), 7 Saturn Acquisition Merger Sub, Inc. (“Merger Sub”), and Cerberus Capital Management L.P. 8 (“Cerberus Capital” and/or, collectively, with AB Acquisition, Albertson’s Holdings, Albertson’s
9 LLC, and Merger Sub, “Albertsons”). This action seeks to enjoin defendants from further 10 breaching their fiduciary duties in their pursuit of a sale of Safeway at an unfair price through an 11 unfair and self-serving process to Albertsons (the “Proposed Transaction”). 12 2. Pursuant to the parties’ Agreement and Plan of Merger dated March 6, 2014 13 “Merger Agreement”), Albertsons intends to acquire all of the issued and outstanding shares 14 Safeway common stock in exchange for $32.50 in cash and contingent value rights (“CVRs 15 related to the disposition of certain of the Company’s “non-core assets,” which have an estimat 16 value between $3.45 and $3.85 per share. Further, Safeway intends to distribute the 37.8 milli 17 shares it owns in Blackhawk Network Holdings, Inc. (“Blackhawk”) to shareholders in mid-Ap 18 2014 (the “Blackhawk distribution”). Based on the closing price of Blackhawk’s common stock
19 $25.06 per share on March 5, 2014, the Blackhawk distribution has a current value of $3.95 p 20 Company share. All together, the $32.50 cash consideration, the CVRs, and the Blackhaw 21 distribution will result in a consideration for Safeway shareholders worth approximately $40 p 22 share (the “Proposed Consideration”). 23 3. Safeway is one of the largest food and drug retailers in the United States with 1,33 24 stores in twenty states and the District of Columbia and sales totaling approximately $36.1 bi 25 in 2013. The Company has thirteen distribution centers, twenty manufacturing plants, 26 employs approximately 138,000 employees. In addition, Safeway also has considerable “non 27 assets,” including (i) its majority stake in Blackhawk, a leading prepaid payment net 28 supporting the management and distribution of consumer gift cards; (ii) a 49% ownership of
I CLASS ACTION COMPLAINT - 1 - Case4:14-cv-02412-JSW Document1 Filed05/23/14 Page3 of 80
1 Ley, S.A. de C.V. (“Casa Ley”), the fifth-largest food and general merchandise retailer in Mex
2 based on sales; and (iii) a portfolio of real estate development assets held through its subsid
3 Property Development Centers, LLC (“PDC”). Between its core business and these non-c 4 assets, the Company has delivered solid and improving financial results in recent years. In f
5 for eight of the past ten quarters, Safeway exceeded consensus analyst estimates for adjus 6 earnings per share (“EPS”) and on February 19, 2014, the Company reported sales and o 7 revenue was $11.3 billion for the fourth quarter of 2013 compared to $11.2 billion for the fo 8 quarter of 2012. Gross profit margin also increased year-over-year, reaching 26.52% of sales 9 the fourth quarter of 2013 and 26.27% for the full year 2013. The Proposed Transaction threat 10 to bring an end to this financial progress. 11 4. Several equity analysts had price targets for Safeway well above the Proposed 12 Consideration of $40 per share prior to the announcement of the Proposed Transaction, and 13 numerous others have been sharply critical of the deal since it was announced. Analyst Karen
14 Short (“Short”) of Deutsche Bank Securities Inc. described the Proposed Transaction as “a great
15 deal” for Albertsons and as undervaluing Safeway. In the four and a half months between the
16 first rumors of a deal with Albertsons and Safeway and the deal announcement, various analysts 17 valued a potential transaction between the two companies. Collectively, these analysts believe 18 that a deal between Albertsons and Safeway would result in a consideration for Safeway
19 shareholders between $43 and $56 per share. The Proposed Consideration, however, falls well
20 below this range.
21 5. Moreover, according to Bloomberg data, the Proposed Transaction is the cheapest
22 deal in the food retail industry in almost a decade and, based on comparable historical 23 transactions, a fair price for Safeway’s considerable assets should fall in the range of $48 to
24 $67 per share . The Proposed Consideration also falls significantly below this range.
25 6. In order to lock in the Proposed Transaction at the unfair Proposed
26 I the Board breached their fiduciary duty to the Company shareholders by entering into
27 I preclusive and onerous deal protection devices, as set forth in the Merger Agreement. 28 provisions, which further diminish the chances of obtaining maximum value for the Company’
I CLASS ACTION COMPLAINT - 2 - Case4:14-cv-02412-JSW Document1 Filed05/23/14 Page4 of 80
1 shareholders by collectively precluding any competing offers for the Company, include: (i)
2 impractically short “go-shop” period lasting just twenty-one days; (ii) a three business-
3 matching rights period during which Albertsons can match any superior proposal received by 4 Company; and (iii) a termination fee of $150 million if the Company had accepted a compet
5 bid during the “go-shop” period and a termination fee of $250 million now that the “go-sh 6 period has expired.
7 7. In order to further discourage any competing bidder interested in acqui
8 Safeway with its Blackhawk assets, Safeway distributed its equity stake in Blackhawk on A
9 14, 2014 to its shareholders, thereby precluding any further interest by such bidders in acqui
10 Safeway.
11 8. The Company has also left in place its shareholder Rights Agreement, other
12 known as a “poison pill,” adopted in September 2013 in order to prevent competing bidders f 13 making acquisition proposals directly to the Safeway shareholders and it has adopted an Execu
14 Severance Plan (the “Severance Plan”) that will substantially increase the acquisition costs for 15 potential competing bidder.
16 9. The Proposed Transaction is also the product of a deeply flawed and conflicted sal 17 process. The Board retained Goldman Sachs & Co. (“Goldman Sachs”) as its financial adviso
18 despite Goldman Sachs’s substantial ties to Albertsons’ principal investor, Cerberus Capital. As
19 result, the Board and Goldman Sachs conducted a sales process that was designed to confir 20 Albertsons as the winning bidder rather than maximize value for Safeway’s shareholders through
21 I competition process. 22 10. Furthermore, while the Company’s shareholders will lose control of Safeway at a 23 unfair price, the Company’s fiduciaries will receive immediate benefits from the closing of th 24 Proposed Transaction, including lucrative and prestigious positions at the post-merger compan 25 and/or sizeable severance packages. Additionally, Safeway’s officers and directors will receiv 26 millions of dollars in special payments for currently unvested stock options, performance shares 27 and restricted stock units (“RSUs”), all of which shall, upon the closing of the Propose 28 Transaction, become fully vested and exercisable. Finally, the Individual Defendants affiliate
I CLASS ACTION COMPLAINT - 3 - Case4:14-cv-02412-JSW Document1 Filed05/23/14 Page5 of 80
1 with Safeway’s majority-owned subsidiary Blackhawk will receive unique benefits in connec 2 with the planned distribution of the Company’s equity stake in Blackhawk. These benefits, n 3 of which is shared equally by Safeway’s public shareholders, were key factors in the Indivi 4 Defendants’ decision to pursue the Proposed Transaction.
5 11. Not only did the Individual Defendants breach their fiduciary duties by agreeing 6 the sale of the Company at an unfairly low price as the result of a flawed and conflicted proce 7 the Individual Defendants also violated Section 14(a) and Section 20(a) of the Securities Exchan 8 Act of 1934 (the Exchange Act) and Rule 14a-9 promulgated thereunder, by misrepresenting 9 omitting several material facts in the Company’s Proxy Statement Pursuant to Section 14(a) of 10 Securities Exchange Act of 1934, filed on April 17, 2014 (the “Proxy”). 11 12. The Proxy omits several material facts, including, inter alia (i) the estimated va 12 of synergies anticipated as a result of the Proposed Transaction; (ii) the current estimated value 13 the Company’s real estate holdings; (iii) what strategic initiatives pertaining to Safeway’s differ 14 geographic initiatives were discussed by the Individual Defendants in the process of negotiati 15 the Proposed Transaction; and (iv) the fees paid to Goldman Sachs in connection with its role 16 financial advisor to Safeway. 17 13. The Proxy also is also materially deficient because it fails to disclose vari 18 material facts regarding Goldman Sachs’ and Greenhill’s valuation analysis of Safeway 19 Blackhawk, as well as omitting material facts regarding both financial advisors’ analy 20 concerning the anticipated future performance of Safeway. 21 14. In pursuing the unlawful plan to sell the Company via an unfair process and at 22 inadequate price, each of the defendants has violated applicable law by directly breaching and 23 aiding and abetting the other defendants’ breaches of their fiduciary duties of loyalty and due ca 24 among others, as well as a violation of applicable legal standards governing the Individ 25 Defendants. The Individual Defendants also violated Sections 14(a) and 20(a) of the Exchan 26 Act by misrepresenting and/or omitting certain material facts in the Proxy. This action seeks 27 enjoin the Individual Defendants from further breaching their duties in connection with t 28 Proposed Transaction. Plaintiff seeks: (i) a declaration that the defendants, jointly and severally
I CLASS ACTION COMPLAINT - 4 -
Case4:14-cv-02412-JSW Document1 Filed05/23/14 Page6 of 80
1 violated Sections 14(a) and/or Section 20(a) of the Exchange Act, as well as Rule 14a 2 promulgated thereunder; (ii) injunctive relief preventing consummation of the Propos
3 Transaction, unless and until the Company adopts and implements a procedure or process 4 obtain a transaction that provides the best possible terms for shareholders, and defendants disclo
5 all material information concerning the Proposed Transaction to Safeway shareholders; (iii)
6 directive to the Individual Defendants to comply with their duties under applicable law
7 I obtaining a transaction which is in the best interests of Safeway shareholders; and (iv) rescissi
8 I of, to the extent already implemented, the Merger Agreement or any of the terms thereof.
9 JURISDICTION, VENUE, AND INTRADISTRICT ASSIGNMENT 10 15. This Court has jurisdiction over all causes of action asserted herein pursuant 11 Section 27 of the Exchange Act for violations of Sections 14(a) and 20(a) of the Exchange Act a 12 SEC Rule 14a-9 promulgated thereunder. This Court also has jurisdiction over the subject mat 13 of this action pursuant to 28 U.S.C. §1332(a)(2) because plaintiff and defendants are citizens
14 different states and the amount in controversy exceeds $75,000, exclusive of interest and cos
15 This Court has supplemental jurisdiction pursuant to 28 U.S.C. §1367(a) over all other claims t 16 are so related to the claims within its original jurisdiction that they form part of the same case 17 controversy under Article III of the U.S. Constitution. 18 16. Venue is proper in this Court pursuant to 28 U.S.C. §1391(a) because: (i)
19 Company’s principal executive offices are located in this District; (ii) the Merger Agreem 20 specifically states that notices, requests, and other communications to the Company shall 21 mailed to the Company’s Pleasanton, California, address located in this District; (iii) one or m 22 of the defendants either resides in or maintains executive offices in this District; (v) a substan 23 portion of the transactions and wrongs complained of herein, including the defendants’ prim 24 participation in the wrongful acts detailed herein, and aiding and abetting and conspiracy 25 violation of fiduciary duties occurred in this District; and (vi) defendants have received substan 26 compensation in this District by doing business here and engaging in numerous activities that h 27 an effect in this District. 28 17. This action is properly assigned to the Oakland division of this Court.
I CLASS ACTION COMPLAINT - 5 -
Case4:14-cv-02412-JSW Document1 Filed05/23/14 Page7 of 80
1 PARTIES 2 18. Plaintiff Barbara Templeton is, and has been, a shareholder of Safeway at all
3 I times relevant hereto. 4 19. Defendant Safeway is a Delaware corporation with principal executive offices
5 located at 5918 Stoneridge Mall Road, Pleasanton, California. Accordingly, Defendant Safeway
6 is a citizen of Delaware and California. Defendant Safeway is one of the largest food and drug 7 retailers in North America. As of December 28, 2013, Defendant Safeway operated 1,335 stores
8 in the Western, Southwestern, Rocky Mountain, and Mid-Atlantic regions of the United States.
9 Defendant Safeway also has significant ownership interests in certain other “non-core assets.” 10 Defendant Safeway owns 37.8 million shares of Blackhawk, representing approximately 72.2% 11 of Blackhawk’s outstanding shares. Blackhawk is a leading prepaid payment network that 12 utilizes proprietary technology to offer a broad range of gift cards, other prepaid products, and 13 payment services. In addition, defendant Safeway owns 49% of Casa Ley, the fifth-largest food 14 and general merchandise retailer in Mexico based on sales. Upon completion of the Proposed 15 Transaction, defendant Safeway will become a wholly-owned subsidiary of defendant 16 Albertson’s Holdings. 17 20. Defendant Robert L. Edwards (“Edwards”) is Safeway’s Chief Executive Officer 18 (“CEO”) and a director and has been since May 2013 and President and has been since April 19 2012. Defendant Edwards was also Safeway’s Chief Financial Officer from 2004 to February 20 2013 and Executive Vice President from 2004 to April 2012. Defendant Edwards is a 21 Blackhawk director and has been since July 2008. Defendant Edwards was also a Blackhawk 22 director from January 2006 to August 2007. Defendant Edwards is a citizen of California. 23 21. Defendant T. Gary Rogers (“Rogers”) is a Safeway’s Chairman of the Board and 24 has been since May 2013 and a director and has been since March 2011. Defendant Rogers was 25 also Safeway’s Lead Independent Director from January 2012 to May 2013. Defendant Rogers
26 I is a citizen of California. 27 22. Defendant William Y. Tauscher (“Tauscher”) is a Safeway director and has bee 28 since May 1998. Defendant Tauscher is also Blackhawk’s CEO and has been since August 201
I CLASS ACTION COMPLAINT - 6 -
Case4:14-cv-02412-JSW Document1 Filed05/23/14 Page8 of 80
1 Chairman of the Board and has been since August 2009, and a director and has been since Augus 2 2007. Defendant Tauscher was also Blackhawk’s Executive Chairman from March 2010 to 3 August 2010 and President from August 2010 to November 2010. Defendant Tauscher is a citizen 4 of California.
5 23. Defendant Mohan Gyani (“Gyani”) is a Safeway director and has been since
6 October 2004. Defendant Gyani is also a Blackhawk director and has been since August 2007 7 Defendant Gyani is a citizen of California. 8 24. Defendant Arun Sarin (“Sarin”) is a Safeway director and has been since Augu
9 2009. Defendant Sarin is also Blackhawk director and has been since August 2009. 10 I Sarin is a citizen of California. 11 25. Defendant Janet E. Grove (“Grove”) is a Safeway director and has been since 12 October 2004. Defendant Grove is a citizen of California. 13 26. Defendant Frank C. Herringer (“Herringer”) is a Safeway director and has been 14 since March 2008. Defendant Herringer is a citizen of California. 15 27. Defendant Kenneth W. Oder (“Oder”) is a Safeway director and has been since 16 March 2008. Defendant Oder is a citizen of California. 17 28. Defendant George J. Morrow (“Morrow”) is a Safeway director and has been 18 since May 2013. Defendant Morrow is a citizen of California. 19 29. Defendant AB Acquisition is a Delaware limited liability company with principal 20 executive offices located at 250 Parkcenter Boulevard, Boise, Idaho. Accordingly, defendant 21 I AB Acquisition is a citizen of Delaware and Idaho. Defendant AB Acquisition operates ACME, 22 Albertsons, Jewel-Osco, Lucky, Shaw’s, Star Market and Super Saver, and stores under the 23 United Family of stores, including Amigos, Market Street, and United Supermarkets. In total, 24 defendant AB Acquisition operates 1,075 stores and fourteen distribution centers in twenty-nine 25 states. Defendant AB Acquisition is privately owned and controlled by an investor group led by 26 defendant Cerberus Capital and including Kimco Realty Corporation, Klaff Realty, Lubert-Adler 27 Partners, and Schottenstein Stores Corporation.
28
I CLASS ACTION COMPLAINT - 7 -
Case4:14-cv-02412-JSW Document1 Filed05/23/14 Page9 of 80
1 30. Defendant Albertson’s Holdings is a Delaware limited liability company and a 2 wholly-owned subsidiary of defendant AB Acquisition. Defendant Albertson’s Holdings is a 3 citizen of Delaware. 4 31. Defendant Albertson’s LLC is a Delaware limited liability company and a 5 wholly-owned subsidiary of Albertson’s Holdings. Defendant Albertson’s is a citizen of
6 Delaware. 7 32. Defendant Merger Sub is a Delaware corporation and wholly-owned subsidiary 8 of Albertson’s Holdings. Upon completion of the Proposed Transaction, defendant Merger Sub 9 will merge with and into Safeway and cease its separate corporate existence. Defendant Merger 10 I Sub is a citizen of Delaware. 11 33. Defendant Cerberus Capital is a Delaware limited partnership with principa 12 executive offices located at 875 Third Avenue, Eleventh Floor, New York, New York 13 Accordingly, defendant Cerberus Capital is a citizen of Delaware and New York. Defendan 14 Cerberus Capital is one of the world’s leading private investment firms and has more than $25 15 billion under management invested in four primary strategies: distressed securities & assets 16 control and non-control private equity; commercial mid-market lending; and real esta 17 investments. Defendant Cerberus Capital leads the investor group that owns and 18 defendants AB Acquisition, Albertson’s Holdings, Albertson’s LLC, and Merger Sub.
19 CLASS ACTION ALLEGATIONS 20 34. Plaintiff brings this action for itself and on behalf of all holders of Safewa 21 common stock which have been or will be harmed by the conduct described herein (the “Class”) 22 Excluded from the Class are defendants and any individual or entity affiliated with any defendant.
23 35. This action is properly maintainable as a class action.
24 3i The Class is so numerous that joinder of all members is impracticable. 25 to the Merger Agreement, there were more than 230 million ordinary shares of Safeway comm 26 stock outstanding as of March 4, 2014, owned by thousands of investors throughout the Uni
27 I States.
28
I CLASS ACTION COMPLAINT - 8 -
Case4:14-cv-02412-JSW Document1 Filed05/23/14 Page10 of 80
1 37. There are multiple questions of law and fact which are common to the Class 2 which predominate over questions affecting any individual Class member, including:
3 (a) whether the Proxy contains material misstatements or omissions in
4 I violation of sections 14(a) and 20(a) of the Exchange Act;
5 (b) whether the Individual Defendants have breached any of their obligations
6 I and/or duties owed to plaintiff and the other members of the Class in connection with the
7 Proposed Transaction by: (i) failing to take steps to maximize the value of Safeway to its public 8 shareholders; (ii) failing to properly value Safeway and its various assets and operations; and/or
9 (iii) ignoring and not protecting Safeway shareholders against the numerous conflicts of interest;
10 (c) whether the Individual Defendants are conflicted, engaged in self-dealing, 11 or have otherwise unjustly enriched themselves or the other insiders/affiliates of Safeway in 12 connection with the Proposed Transaction;
13 (d) whether the Individual Defendants, in bad faith and for improper motives,
14 impeded or erected barriers designed to discourage other potentially interested parties from 15 making an offer to acquire the Company or its assets;
16 (e) whether any of the defendants aided and abetted any of the Board’s
17 breaches of duty owed to plaintiff and other members of the Class in connection with the 18 Proposed Transaction; and
19 (f) whether plaintiff and the other members of the Class would suffer
20 irreparable injury were the Proposed Transaction consummated without the wrongdoing 21 complained of herein being corrected.
22 38. Plaintiff’s claims are typical of the claims of the other members of the Class and 23 plaintiff does not have any interests adverse to the Class.
24 39. Plaintiff has retained competent counsel experienced in litigation of this nature 25 will fairly and adequately represent and protect the interests of the Class.
26 40. The prosecution of separate actions by individual members of the Class 27 create a risk of inconsistent or varying adjudications with respect to individual members of t 28 Class which would establish incompatible standards of conduct for the party opposing the Class.
I CLASS ACTION COMPLAINT - 9 -
Case4:14-cv-02412-JSW Document1 Filed05/23/14 Page11 of 80
1 41. Plaintiff anticipates that there will be no difficulty in the management of t
2 litigation. Indeed, a class action is superior to other available methods for the fair and efficie
3 adjudication of this controversy. 4 42. Defendants have acted on grounds generally applicable to the Class with respect
5 the matters complained of herein, thereby making appropriate the relief sought with respect to t
6 Class as a whole.
7 INDIVIDUAL DEFENDANTS’ FIDUCIARY DUTIES
8 43. Under Delaware law, in any situation where the directors of a publicly tra 9 corporation undertake a transaction that will result in a sale or change in corporate control, t
10 have an affirmative fiduciary obligation to obtain the highest value reasonably available for 11 corporation’s shareholders, including a significant control premium. To diligently comply w 12 these duties, neither the officers nor the directors may take any action that:
13 (a) adversely affects the value provided to the corporation’s shareholders;
14 (b) will discourage, inhibit, or deter alternative offers to purchase control of 15 corporation or its assets;
16 (c) contractually prohibits themselves from complying with their fiduci
17 I duties;
18 (d) will otherwise adversely affect their duty to secure the best value reasona 19 available under the circumstances for the corporation’s shareholders; and
20 (e) will provide the directors and/or officers with preferential treatment at 21 expense of, or separate from, the public shareholders. 22 44. In accordance with their duties of loyalty and good faith, the Individ 23 Defendants, as directors, officers, and/or majority shareholders of Safeway are obligated un 24 Delaware law to refrain from:
25 (a) participating in any transaction where the directors’ or officers’ loyalties
26 I divided;
27
28
I CLASS ACTION COMPLAINT - 10 -
Case4:14-cv-02412-JSW Document1 Filed05/23/14 Page12 of 80
1 (b) participating in any transaction where the directors or officers receive, 2 are entitled to receive, a personal financial benefit not equally shared by the public shareholders
3 the corporation; and
4 (c) unjustly enriching themselves at the expense or to the detriment of 5 public shareholders.
6 45. The Individual Defendants, separately and together, in connection with t
7 Proposed Transaction, are knowingly or recklessly violating their fiduciary duties and aiding a 8 abetting such breaches, including their duties of loyalty, good faith, and independence owed 9 plaintiff and other public shareholders of Safeway. Certain of the defendants are obtaining 10 themselves personal benefits, including personal financial benefits not shared equally by plaint 11 or the Class (as defined herein). Accordingly, the Proposed Transaction will benefit the Individ 12 Defendants in significant ways not shared with the Class members. As a result of the Individ 13 Defendants’ self-dealing and divided loyalties, neither plaintiff nor the Class will receive adequ 14 or fair value for their Safeway common stock in the Proposed Transaction.
15 46. Because the Individual Defendants are knowingly or recklessly breaching th
16 fiduciary duties of loyalty, good faith, and independence in connection with the Proposed
17 Transaction, the burden of proving the inherent or entire fairness of the Proposed Transaction
18 including all aspects of its negotiation, structure, price, and terms, is placed upon defendants as a
19 matter of law. 20 THE PROPOSED TRANSACTION 21 47. On March 6, 2014, Safeway and Albertsons issued a press release announcing 22 that the Individual Defendants had agreed to sell the Company to Albertsons for $32.50 per 23 Safeway share plus special dividends and/or CVRs related to the planned disposition of certain 24 of the Company’s “non-core assets.” The press release stated, in relevant part, as follows:
25 PLEASANTON, CA and BOISE, ID — March 6, 2014—Safeway Inc. (NYSE: 26 SWY) and Albertsons announced today a definitive agreement under which AB Acquisition LLC (“AB Acquisition”) will acquire all outstanding shares of 27 Safeway (the “Merger”). The merger agreement was unanimously approved by the Board of Directors of Safeway. 28
I CLASS ACTION COMPLAINT - 11 - Case4:14-cv-02412-JSW Document1 Filed05/23/14 Page13 of 80
AB Acquisition is the owner of Albertson’s LLC and New Albertson’s, Inc. 1 (collectively “Albertsons”) and is controlled by a Cerberus Capital Management,
2 L.P. (“Cerberus”)-led investor group, which also includes Kimco Realty Corporation (NYSE:KIM), Klaff Realty LP, Lubert-Adler Partners LP, and 3 Schottenstein Stores Corporation.
4 As a result of the Merger, plus other actions to be taken by the Safeway Board of Directors as described below, including the separate sales of certain other 5 primarily non-core assets, and the distribution of Blackhawk shares, Safeway
6 shareholders are expected to receive total value estimated at $40 per share.
7 Albertsons’ Chief Executive Officer Bob Miller stated, “This transaction offers us the opportunity to better serve customers by adapting more quickly to evolving 8 shopping preferences in diverse regions across the country. It also brings together
9 two great organizations with talented management teams. Robert Edwards and his team have done an outstanding job in positioning Safeway’s core business for 10 success, by investing in its stores and creating innovative strategic marketing programs that contribute to shareholder value. Working together will enable us to 11 create cost savings that translate into price reductions for our customers. Together,
12 we will be able to respond to local needs more quickly and deliver outstanding products at the lowest possible price, more efficiently than ever before.” 13 “This Merger is one of several actions we have taken in recent months as a result of 14 our strategic business review. The combined value of the transactions described
15 above is expected to deliver a premium to Safeway’s shareholders of 72% from one year ago, and 56% over the share price six months ago,” said Robert Edwards, 16 President & Chief Executive Officer of Safeway Inc. “Safeway has been focused on better meeting shoppers’ diverse needs through local, relevant assortment, an 17 improved price/value proposition and a great shopping experience that has driven
18 improved sales trends. We are excited about continuing this momentum as a combined organization. We look forward to working with Bob Miller and the rest 19 of the Albertsons team as we proceed together on a path towards becoming an even stronger organization.” 20
21 Value to Safeway Shareholders
22 Under the merger agreement, Safeway shareholders will receive $32.50 per share in cash. Additionally, shareholders will have the right to receive pro-rata 23 distributions of net proceeds from primarily non-core assets with an estimated
24 value of $3.65 per share. The proceeds are from:
25 1. The sale of the assets of real-estate development subsidiary Property Development Centers, LLC (“PDC”) comprised of its shopping center 26 portfolio including certain related Safeway stores, and
27 2. The monetization of its 49% equity interest in Mexico-based food
28 and general merchandise retailer Casa Ley, S.A. de C.V. (“Casa Ley”).
CLASS ACTION COMPLAINT - 12 - Case4:14-cv-02412-JSW Document1 Filed05/23/14 Page14 of 80
If the sales of PDC and/or Casa Ley are completed prior to the closing of the 1 Merger, the net proceeds from these sales will be paid to shareholders at or
2 before the closing of the Merger in a special dividend. If the PDC sale and/or Casa Ley sales are not completed by the closing of the Merger, Safeway 3 shareholders will receive a non-transferable contingent value right (a “CVR”), which will provide shareholders with their pro-rata share of the net proceeds 4 from the PDC and/or Casa Ley sales, as applicable, subject to the terms and
5 conditions of the CVRs. The PDC CVR will have a two-year term. The Casa Ley CVR will have a four-year term. If Safeway is unable to sell Casa Ley before the 6 four-year expiration of the CVR, shareholders would receive a cash distribution equal to the after-tax fair market value of Safeway’s interest in Casa Ley at such 7 time. There can be no assurances that Safeway will be able to sell either or both of
8 PDC or Casa Ley.
9 Distribution of Blackhawk Shares
10 The Merger does not alter Safeway’s previously announced plan to distribute the remaining 37.8 million shares of Blackhawk stock that it owns to its shareholders 11 in mid-April and prior to the completion of the Merger. Safeway’s shares of
12 Blackhawk are contemplated to be distributed pro-rata to the shareholders, with a current value of $3.95 per Safeway share based on the closing price of 13 Blackhawk’s common stock of $25.06 per share on March 5, 2014 and a diluted share count at Safeway of approximately 235 million shares. The final ratio and 14 the value of the Blackhawk shares will be determined at the time of the distribution
15 and will depend on the market value of Blackhawk at that time and the number of diluted Safeway shares. The Blackhawk distribution is not dependent upon the 16 completion of the Acquisition, and is being undertaken for independent business reasons. The Blackhawk distribution is intended to maximize the value of 17 Safeway’s long-term investment in Blackhawk, which the Board determined to be
18 in the best interests of Safeway, Blackhawk, and the shareholders of both companies. 19 In connection with the completion of the Merger, it is expected that Safeway’s 20 distribution of Blackhawk shares will be taxable to Safeway and Safeway’s
21 shareholders. AB Acquisition will assume the corporate tax on the distribution of Blackhawk shares to Safeway’s shareholders. It is also anticipated that there will be 22 a step up in Blackhawk’s tax basis in assets which could generate approximately $30 million in cash tax savings per annum for Blackhawk. On a present value basis 23 over 15 years, this tax savings, resulting from future tax deductions, is valued at
24 approximately $4.50 per Blackhawk share and $0.70 per Safeway share.
25 * * *
26 About the Combined Company
27
28
CLASS ACTION COMPLAINT - 13 - Case4:14-cv-02412-JSW Document1 Filed05/23/14 Page15 of 80
The Merger will create a diversified network that includes over 2,400 stores, 27 1 distribution facilities and 20 manufacturing plants with over 250,000 dedicated and
2 loyal employees. No store closures are expected as a result of this transaction.
3 Bob Miller, Albertsons current Chief Executive Officer, will become Executive Chairman. Robert Edwards, Safeway’s current President and Chief Executive 4 Officer, will become President and Chief Executive Officer of the combined company. 5
6 Banners will include Safeway, Vons, Pavilions, Randalls, Tom Thumb, Carrs, Albertsons, ACME, Jewel-Osco, Lucky, Shaw’s, Star Market, Super Saver, United 7 Supermarkets, Market Street and Amigos.
8 The Merger will enable Albertsons and Safeway to implement operational best
9 practices in order to offer customers an enhanced shopping experience and more competitive prices, while enabling the combined company to pursue industry- 10 leading customer service in an increasingly competitive and dynamic marketplace. Realizing substantial cost savings will allow for investments that are 11 expected to benefit customers, including price reductions as well as store
12 remodels and refurbishments. The diversified network of retail assets, associated distribution centers and manufacturing assets will allow for a broader assortment of 13 products, a more efficient distribution and supply chain, enhanced fresh and perishable offerings, and expanded private label alternatives for customers. 14
15 “Albertsons has successfully transformed underperforming retail grocery stores into strong performers by focusing on enhancing the local customer experience,” 16 said Lenard Tessler, Co-Head of Global Private Equity and Senior Managing Director at Cerberus. “Similarly, Safeway has consistently provided outstanding 17 value and customer service throughout the communities it serves. Combining these
18 strong management teams will strengthen the ability of Safeway and Albertsons to deliver on a shared commitment to offering customers higher quality products at 19 lower prices, which will undoubtedly yield positive results for all stakeholders in the business.” 20
21 Timing and Closing Conditions
22 The Merger is expected to close in the fourth quarter of 2014 following the 23 satisfaction of customary closing conditions, including approval of the Merger by the holders of a majority of the outstanding shares of Safeway common stock and 24 regulatory approvals including expiration or termination of the waiting period
25 under the Hart-Scott-Rodino Antitrust Improvements Act of 1976. Under certain circumstances, if the Merger fails to close, AB Acquisition would be required to 26 pay Safeway $400 million.
27 * * *
28 Go-Shop Period
CLASS ACTION COMPLAINT - 14 - Case4:14-cv-02412-JSW Document1 Filed05/23/14 Page16 of 80
The merger agreement includes a so-called “go-shop” period, during which 1 Safeway, with the assistance of Goldman Sachs, its financial advisor, will actively
2 solicit, receive, evaluate and potentially enter into negotiations with parties that offer alternative proposals. The initial go-shop period is 21 days. For a 15-day 3 period following the termination of the go-shop period, Safeway will be permitted to continue discussions and enter into or recommend a transaction with any 4 person that submitted a qualifying proposal during the 21-day period. A
5 successful competing bidder who makes a superior proposal during the go-shop period would bear a $150 million termination fee. For a competing bidder who 6 did not qualify during the go-shop period, the termination fee would be $250 million. There can be no assurance that this process will result in a superior 7 proposal. Safeway does not intend to disclose developments with respect to the
8 solicitation process unless and until its Board has made a decision with respect to any potential superior proposal.
9 Advisors 10 Goldman Sachs, Sachs & Co. served as financial advisor to Safeway in 11 connection with the Company’s strategic review and the transactions. Greenhill
12 & Co. has also served as financial advisor to Safeway. Latham & Watkins LLP served as Safeway’s outside legal counsel. Citigroup, lead financial advisor, Bank 13 of America Merrill Lynch and Credit Suisse served as financial advisors to Albertsons, Cerberus and the investor group. Schulte Roth & Zabel LLP served as 14 lead outside legal counsel to Albertsons, Cerberus and the investor group, and
15 Dechert LLP, Schulte Roth & Zabel LLP and Baker Botts LLP served as outside legal counsel on antitrust matters. 16 Property Development Centers and Casa Ley 17 Formed in 2008, PDC is a wholly owned subsidiary of Safeway Inc., engaged in 18 retail shopping center development and capitalizing on Safeway’s core real estate
19 competency. PDC projects are concentrated in Safeway’s urban and suburban markets, and are predominantly located in California and Hawaii. PDC’s portfolio 20 consists of 25 properties with an estimated three million square feet, and is
21 comprised of 11 operating assets, nine projects under construction, and five projects in the due diligence and entitlement phases. Safeway will soon be initiating 22 a process to sell PDC.
23 Safeway owns 49% of Casa Ley, the fifth largest food and general merchandise retailer in Mexico based on sales. Casa Ley is a private company, and does not 24 publicly disclose financials. Safeway has begun discussions with the majority
25 owners of Casa Ley regarding a potential sale of Safeway’s interests.
26 On a combined basis, the value of the CVRs is estimated in the range of $3.45 to $3.85 per share. The estimated values for PDC and Casa Ley are based on analyses 27 that Safeway has performed with the help of financial advisors, valuations from
28
CLASS ACTION COMPLAINT - 15 - Case4:14-cv-02412-JSW Document1 Filed05/23/14 Page17 of 80
independent third parties and market information. The actual net after-tax proceeds 1 received upon a sale could vary substantially from these estimates.
2 48. Shortly thereafter, on March 10, 2014, Safeway filed a DEFA14A and Form 8- 3 with the U.S. Securities and Exchange Commission (“SEC”), wherein it disclosed the 4 Agreement. In addition to revealing that the Proposed Transaction is the product of a flawed 5 process and, unless the offer price is increased, would be consummated at an unfair price, 6 Merger Agreement contains numerous overly preclusive deal protection devices designed 7 preclude any competing bids for Safeway from emerging and ensuring that Defendants secure 8 I personal benefits that they negotiated for in connection with the close of the Proposed 9 49. For example, despite defendants touting the limited “go-shop” period in the 10 release announcing the Proposed Transaction, the Merger Agreement confirms that provision 11 included purely to create the illusion of a fair and competitive bidding process. Section 5.8(a) 12 the Merger Agreement allows Safeway just twenty-one days to solicit alternative proposals a 13 section 5.8(c) requires that all negotiations with competing bidders that make offers for t 14 Company during the “go-shop” period must be concluded within fifteen days of the expiration 15 the “go-shop” period. 16 50. By way of comparison, the Proposed Transaction required months to negotiate 17 finalize with rumors of a potential deal circulating as far back as October 2013, 18 I confirming those rumors in its February 19, 2014 earnings press release, and the Propo 19 Transaction being announced in early March. After engaging in the over five month negotiat 20 process with Albertson’s, defendants were fully aware that thirty-six days is an impractical amo 21 of time to negotiate a deal of this size and complexity. As a result, the agreed “go-shop” per 22 was not intended to create a truly fair and competitive bidding process that would result in 23 improved consideration for the Company’s shareholders as implied. 24 51. Not surprisingly, on March 28, 2014, Safeway announced that the “go-shop” 25 had expired without the Company receiving any alternative proposals. In an analyst 26 published March 31, 2014, Deutsche Bank’s Short wrote that she was not surprised that there 27 I 28 been no alternative proposals because three weeks may have been insufficient time for The
I CLASS ACTION COMPLAINT - 16 -
Case4:14-cv-02412-JSW Document1 Filed05/23/14 Page18 of 80
1 Co. (“Kroger”), the most likely competing bidder, to make a “risk free” offer. Short observed 2 Kroger would have needed to provide “detailed market by market concentration analysis” in
3 I make a competing bid, which was “simply not possible in a 21-day period.”
4 52. The likelihood of another offer emerging is even further reduced by section 5.8(
5 of the Merger Agreement which conveys upon Albertsons unlimited information and matchi 6 rights in the event that a superior proposal is ultimately received by the Company. This matchi 7 rights provision requires the Company to disclose the terms of any potentially superior proposal
8 Albertsons and mandates that Safeway negotiate in good-faith with Albertson for at least thr
9 business days concerning a counter offer that need only be as favorable as the competing super 10 proposal. Given defendant Albertsons’ right to match any competing offer, a rival bidder is ev
11 less likely to emerge.
12 53. Even in the unlikely event that a competing bidder was able to put together 13 negotiate a superior proposal for Safeway according to the absurdly short “go-shop” schedul
14 Safeway would still have had to pay Albertsons a $150 million termination fee pursuant to Sectio
15 7.2(b) of the Merger Agreement should it decide to accept the alternative proposal. Now that t
16 “go-shop” period has expired, however, the termination fee payment required for entering into 17 competing transaction is $250 million. Accordingly, not only will any competing bidder have
18 beat Albertsons’ best offer for Safeway, it will also have to pay a premium in order to cover t
19 excessive termination fee.
20 54. The structure of the Proposed Transaction and, in particular, the Board’s 21 to distribute Safeway’s ownership stake in Blackhawk (the “Blackhawk Distribution”) to 22 shareholders prior to the completion of the Proposed Transaction, have further decreased
23 likelihood of a competing bidder emerging. Safeway first announced the Blackhawk Distribut 24 on February 19, 2014 – at the same time it disclosed the ongoing merger talks with Albertsons. 25 this time, negotiations had reached a point where it was clear to the Board that Albertsons was
26 I interested in acquiring the Company’s Blackhawk interest and they had to take action in order
27 I get a deal done. However, a competing bidder might be interested in acquiring the B 28 shares along with the Company and may be willing to pay more for Safeway than what is
I CLASS ACTION COMPLAINT - 17 - Case4:14-cv-02412-JSW Document1 Filed05/23/14 Page19 of 80
1 I offered in the Proposed Transaction. Rather than pursue this possibility, however, the Indivi 2 Defendants pushed ahead with the Blackhawk Distribution on an expedited basis – completing
3 spin-off on April 17, 2014, shortly after the post-”go-shop” negotiating window closed. T 4 made it extremely difficult for any potentially competing offer to secure a deal for Safeway
5 included the acquisition of its interest in Blackhawk from being made.
6 55. To make matters worse, the Board took proactive steps to curb shareholders’ abilit 7 to mount a hostile takeover attempt when, on September 16, 2013, it adopted a one-year Righ
8 Agreement (aka a “poison pill”), that effectively prevents any investor from acquiring more than
9 10% stake in the Company. Purportedly adopted to “help promote the fair and equal treatment 10 all stockholders of the Company and ensure that the Board remains in the best position t
11 discharge its fiduciary duties to the Company and its stockholders” it is really just anoth 12 preclusive deal protection devise. The terms of the Rights Agreement prevent competing bidde
13 from presenting their acquisition proposals directly to Safeway’s shareholders without the suppo 14 of the Board.
15 56. Collectively, these onerous and preclusive provisions and agreements, which 16 serve to unreasonably deter and discourage superior offers from other interested parties and ens 17 the acquisition of the Company by Albertsons, were agreed to by the Individual Defendants
18 help secure the personal benefits and unfair profits afforded to them through the Propos
19 Transaction and all but ensure that no other bidder steps forward to submit a superior proposal. 20 THE PRECLUSIVE DEAL PROTECTION DEVICES
21 57. On March 10, 2014, Safeway filed a DEFA14A and Form 8-K with the U.S 22 Securities and Exchange Commission (“SEC”), wherein it disclosed the Merger Agreement. 23 Merger Agreement reveals that the Proposed Transaction is the product of a flawed sales pr 24 and, unless the offer price is increased, would be consummated at an unfair price. The M
25 Agreement also reveals that the Individual Defendants agreed to numerous deal protection de
26 designed to preclude any competing bids for Safeway.
27 58. Despite the defendants’ efforts to create the illusion of a fair process by including 28 so-called “go-shop” period in the Merger Agreement, in reality the “go-shop” period is far
I CLASS ACTION COMPLAINT - 18 - Case4:14-cv-02412-JSW Document1 Filed05/23/14 Page20 of 80
1 brief to allow for any meaningful bidding contest. Section 5.8(a) of the Merger Agreement allo 2 Safeway just twenty-one days to solicit alternative proposals and section 5.8(c) requires that
3 negotiations with competing bidders that make offers for the Company during the “go-sh
4 I period must be concluded within fifteen days of the expiration of the “go-shop” period. B 5 contrast, the Proposed Transaction required months to negotiate and finalize.
6 59. On February 19, 2014, in its earnings press release announcing fourth quarter an
7 full year 2013 financial results, Safeway at last confirmed that discussions regarding a potentia 8 transaction were ongoing with an unnamed bidder. However, the Proposed Transaction was no 9 agreed to and announced for another two weeks. The defendants were fully aware that thirty-si
10 days is an impractical amount of time to negotiate a deal of this size and complexity. As a resul 11 the agreed “go-shop” period was intended to discourage alternative proposals for Safeway, rathe 12 than create a truly fair and competitive bidding process that would result in an improve 13 consideration for the Company’s shareholders.
14 60. Not surprisingly, on March 28, 2014, Safeway announced that the “go-shop” perio
15 had expired without the Company receiving any alternative proposals. In an analyst repo 16 published March 31, 2014, Deutsche Bank’s Short wrote that she was not surprised that there ha
17 been no alternative proposals because three weeks may have been insufficient time for The Kroge 18 Co. (“Kroger”), the most likely competing bidder, to make a “risk free” offer. Short observed
19 Kroger would have needed to provide “detailed market by market concentration analysis” in o 20 make a competing bid, which was “simply not possible in a 21-day period.”
21 61. The likelihood of another offer emerging is even further reduced by section 5.8( 22 of the Merger Agreement which conveys upon Albertsons unlimited information and matchin 23 rights in the event that a superior proposal is ultimately received by the Company. This matchin 24 rights provision requires the Company to disclose the terms of any potentially superior proposal
25 Albertsons and mandates that Safeway negotiate in good-faith with Albertson for at least thr
26 business days concerning a counter offer that need only be as favorable as the competing super 27 proposal. Given defendant Albertsons’ right to match any competing offer, a rival bidder is ev
28 less likely to emerge.
I CLASS ACTION COMPLAINT - 19 -
Case4:14-cv-02412-JSW Document1 Filed05/23/14 Page21 of 80
1 62. In the unlikely event that a competing bidder was able to put together and negotiat 2 a superior proposal for Safeway according to the absurdly short “go-shop” schedule, Safeway 3 would still have had to pay Albertsons a $150 million termination fee pursuant to Section 7.2(b) o
4 the Merger Agreement in connection with accepting an alternative proposal. Now that the “go 5 shop” period has expired, a competing bidder will have to pay a termination fee of $250 million .
6 63. The structure of the Proposed Transaction and, in particular, the Board’s decision 7 to distribute Safeway’s ownership stake in Blackhawk prior to the completion of the Proposed
8 Transaction, have further decreased the likelihood of a competing bidder coming in for the
9 Company. Safeway first announced the distribution of its Blackhawk shares on February 19, 2014
10 in the same press release that it disclosed the ongoing merger talks. By that time, negotiation
11 between Safeway and Albertson’s had reached a point where it was clear to the Board tha 12 Albertson’s was not interested in acquiring these particular assets. However, a competing b 13 might have been interested in acquiring the Blackhawk shares along with the Company. In 14 to discourage any such bidder, the Individual Defendants have pushed ahead with the Black
15 distribution on an expedited basis. At the time that the Proposed Transaction was first annou
16 Safeway was set to complete the Blackhawk distribution in mid-April 2014, around the same tim 17 that the post-”go-shop” negotiating window closes, making it extremely difficult for a competin
18 bidder to secure a deal for Safeway that included its Blackhawk shares. On April 8, 201
19 Safeway confirmed in a press release that the Blackhawk distribution was set to go ahead on Apr 20 14, 2014.
21 64. Finally, on September 16, 2013, the Board adopted a Rights Agreement with a 22 year term, otherwise known as a “poison pill,” that effectively prevents any investor from 23 acquiring more than a 10% stake in the Company. Though the Rights Agreement was purportedl 24 adopted to “help promote the fair and equal treatment of all stockholders of the Company an 25 ensure that the Board remains in the best position to discharge its fiduciary duties to the Compan 26 and its stockholders” it is really just another preclusive deal protection. The terms of the Right 27 Agreement prevent competing bidders from presenting their acquisition proposals directly t 28 Safeway’s shareholders without the support of the Board.
I CLASS ACTION COMPLAINT - 20 -
Case4:14-cv-02412-JSW Document1 Filed05/23/14 Page22 of 80
1 65. Collectively, these onerous and preclusive provisions and agreements, which w 2 serve to unreasonably deter and discourage superior offers from other interested parties and ensu
3 the acquisition of the Company by Albertson’s, were agreed to by the Individual Defendants
4 help secure the personal benefits and unfair profits afforded to them through the Propos
5 Transaction and all but ensure that no other bidder steps forward to submit a superior proposal.
6 THE FLAWED AND CONFLICTED SALES PROCESS
7 66. The Individual Defendants approved a Proposed Transaction that is the result of
8 deeply flawed and conflicted sales process that virtually guaranteed a sale to Albertson’ 9 precluding the submission of any other competing bids, even bids that may have been mor
10 beneficial to shareholders. Specifically, the Safeway Board retained Goldman Sachs as i
11 financial advisor despite the fact that Goldman Sachs has numerous lucrative connections t
12 Albertson’s lead investor, Cerberus Capital. In light of these connections, Goldman Sachs 13 unable to provide independent advice to the Safeway Board and was instead predisposed towa 14 green-lighting the Proposed Transaction.
15 67. Cerberus Capital has had numerous business dealings with Goldman Sachs
16 recent years. Prior to 2010, Cerberus Capital, Goldman Sachs, and Credit Suisse Group AG c 17 owned the Wittur Group. The Wittur Group was sold to Triton Partners in 2010. In 201
18 Goldman Sachs refinanced a $1.85 billion loan for Cerberus Capital’s Kyo-ya Hotels & Reso 19 portfolio and in 2013, Goldman Sachs served as lead underwriter for the initial public offering
20 Cerberus Capital’s German real estate portfolio. Cerberus Capital has historically provid
21 Goldman Sachs with a steady stream of business and, as a result, Goldman Sachs was unwilling 22 endanger this lucrative relationship by recommending that the Safeway Board accept any offer
23 the Company other than the Cerberus Capital-backed bid by Albertsons.
24 68. In fact, the Proposed Transaction fits a familiar pattern involving Goldman Sac
25 Cerberus Capital, and grocery chain acquisition targets. In 2006, Goldman Sachs served
26 financial advisor to Albertsons when it was first acquired by an investor group led by Cerbe
27 Capital. More recently, in 2013, Goldman Sachs served as financial advisor to SuperValu
28 (“SuperValu”) when it was acquired by Cerberus Capital-led Albertson’s.
I CLASS ACTION COMPLAINT - 21 -
Case4:14-cv-02412-JSW Document1 Filed05/23/14 Page23 of 80
1 69. The relationship between Cerberus Capital and Goldman Sachs is even more 2 suspicious in light of media reports that the Safeway Board did not complete an exhaustive sales
3 process prior to approving the Proposed Transaction and that Goldman Sachs turned away several 4 potential acquirers following the initial announcement of deal talks. Bloomberg reported in a
5 February 22, 2014 article, that the Board was only negotiating with private-equity firms that were
6 interested in buying the Company in its entirety. The Board was supposedly not interested in 7 selling-off the Company’s individual assets, even if the asset sales unlocked more value for 8 shareholders than the Proposed Transaction. Separately, mergermarket has reported that an
9 industry source claims that Goldman Sachs rejected several expressions of interest from 10 prospective strategic and private equity sources following Safeway’s confirmation of 11 negotiations on February 19, 2014.
12 70. Finally, even the Proxy Statement reveals that a third company offered to purchas 13 Safeway at a price of up to $42 per share, but Safeway – and Goldman Sachs – refused this offer.
14 FAILURE TO MAXIMIZE SHAREHOLDER VALUE
15 71. In order to satisfy their duties and obligations to Safeway shareholders,
16 Individual Defendants are obligated to explore transactions that will maximize shareholder
17 I and not structure a preferential deal for themselves. Here, however, the Proposed Consideration
18 be paid to Company shareholders in the merger does not reflect the true inherent value of S 19 and its many valuable assets as known only by the Individual Defendants, as directors and 20 of the Company, and Albertsons at the time the Proposed Transaction was announced.
21 72. The Proposed Consideration has three separate components: (i) a $32.50 per 22 share cash payment; (ii) pro-rata distributions of the net proceeds from the sales of the
23 Company’s Casa Ley and PDC assets, estimated by Safeway to be worth between $3.45 and
24 $3.85 per share; and (iii) a distribution of the Company’s 37.8 million shares of Blackhawk 25 worth approximately $3.95 per share, based on Blackhawk’s stock price and Safeway’s diluted 26 share count as of March 5, 2014. In the best case scenario, the Company’s shareholders will 27 receive a total consideration worth approximately $40 in connection with the Proposed
28
I CLASS ACTION COMPLAINT - 22 - Case4:14-cv-02412-JSW Document1 Filed05/23/14 Page24 of 80
1 Transaction. However, this figure undervalues Safeway’s substantial assets and is based on
2 unrealistic expectations of the Company’s ability to monetize its “non-core assets.”
3 73. Safeway is one of the largest food and drug retailers in the United States with
4 of $36.1 billion in 2013. The Company operates 1,335 stores in twenty states and the District o
5 Columbia, thirteen distribution centers and twenty manufacturing plants, and employ
6 approximately 138,000 employees. Safeway also owns significant “non-core assets,” specificall
7 Blackhawk, Casa Ley, and PDC. This portfolio of assets has served as the platform for th
8 Company’s solid and improving financial results. Safeway has beat consensus analyst estimate
9 for adjusted EPS in eight of the past ten quarters. On February 19, 2014, the Company reporte
10 financial results for the fourth quarter and full year of 2013. Sales and other revenue was $11.
11 billion for the quarter compared to $11.2 billion for the fourth quarter of 2012. Gross prof
12 margin also increased year-over-year, reaching 26.52% of sales for the fourth quarter of 2013 an
13 26.27% for the full year of 2013.
14 74. During Safeway’s 2013 fourth quarter earnings conference call held on Fe
15 19, 2014, defendant Edwards confirmed that the Company is executing on its plans to make
16 core business more profitable:
17 Now turning to the core business and strategies for growth, we remain committed to driving sales, operating income and market share through core grocery business 18 growth. To generate these results, we are focused on delivering value to our
19 shoppers, offering a relevant assortment and providing a differentiated in-store experience. We continue to evolve our customer-centric approach down to the store 20 level while also driving a stronger level of personalization. We are encouraged by the results we have seen from these initiatives to date, we believe we have the 21 right strategies to better serve the unique needs of our shoppers. These initiatives
22 include clustering, localization and personalization.
23 * * *
24 In addition, we are continuing to leverage our data to drive loyalty to Just for U and
25 our fuel rewards program. We are using the data to partner with CPG companies and build unique offers. The Just for U digital coupons and personalized deals are 26 available to our shoppers in all divisions. Registered users are nearly 6 million at year end. The fuel partner program with Chevron and ExxonMobil has now been 27 successfully expanded to all divisions except one. Our private brands portfolio
28 continues to grow and contribute to loyalty and profitability. Private brands sales
CLASS ACTION COMPLAINT - 23 - Case4:14-cv-02412-JSW Document1 Filed05/23/14 Page25 of 80
reached an all-time high in 2013 at 28.1% as measured as a percent of total 1 grocery sales. Additionally, we continued to realize success with our multi-
2 category organic and natural brands. Open Nature sales increased 42% from last year and exceeded $200 million in 2013.
3 We now have over 450 Open Nature items. Innovation and private brands 4 continues as we launched 774 new private brand items in 2013. 5 6 Tr. Conf. Call, Safeway, Inc. Fourth Q2013, Feb. 19, 2014, available at 7 http://www.morningstar.com/earnings/earnings-call-transcript.aspx?t=SWY&pindex=3 (emphasis added). 8 75. Not surprisingly, the market has begun to recognize the underlying value o 9 Safeway’s assets and operations and also the Company’s future earnings potential. In 2013 10 Safeway’s stock price appreciated by more than 80%, gaining 56% even before initial dea 11 speculation drove its price higher in September 2013 and 81% before the first rumors of a 12 Cerberus Capital-led deal with Albertsons’ reached the market in October 2013. 13 76. Unfortunately, the Proposed Transaction will put an end to the Company’s r 14 financial improvement and the potential benefits that would accrue to Safeway shareho 15 Furthermore, the Proposed Consideration substantially undervalues the Company’s current 16 and their earnings potential. 17 77. Prior to the announcement of the Proposed Transaction, four analysts had 18 targets above the Proposed Consideration of approximately $40: 19 (a) on February 20, 2014, Joseph I. Feldman of the Telsey Advisory Group 20 a price target of $46 per share; 21 (b) on February 20, 2014, Scott A. Mushkin of Wolfe Research set a 22 target of $46 per share; 23 (c) on October 15, 2013, Charles E. Cerankosky of Northcoast Research set 24 price target of $45; and 25 (d) on October 28, 2013, Andrew P. Wolf of BB&T Capital Markets set a 26 27 target of $44 per share. 28
I CLASS ACTION COMPLAINT - 24 -
Case4:14-cv-02412-JSW Document1 Filed05/23/14 Page26 of 80
1 78. Analyst Charles E. Ceranksoky of Northcoast Research set his firm’s price target
2 $45 per share on October 15, 2013, following Safeway’s announcement that it was exiting
3 I unprofitable Chicago retail food business. He argued that the move reflected management’s 4 on growing return on assets as well as market share.
5 79. On October 22, 2013, rumors first emerged that Albertsons and possibly other 6 private equity suitors were considering a bid for Safeway. Several days later, analyst Andrew P
7 Wolf of BB&T Capital Markets set his firm’s price target at $44 per share, but estimated that the
8 Company would actually be worth $47 per share in a potential buyout scenario.
9 80. Analysts Joseph I. Feldman of the Telsey Advisory Group and Scott A. Mushkin 10 Wolfe Research both raised their price targets to $46 on February 20, 2014, following the ne 11 that Safeway was engaged in discussions regarding a potential transaction, believing that 12 Company would be worth much more than the Proposed Consideration in the event of a sale. 13 81. Other analysts have kept their price targets near or at the Proposed Considerat
14 but many of those are still skeptical that the Proposed Transaction represents a fair value
15 Safeway shareholders. Their lower targets are more a reflection of the fact that Albertsons 16 already agreed and locked-in its deal for the Company, drastically reducing the odds of a superi 17 proposal that appropriately values Safeway’s assets. Analyst Mark Wiltamuth of Jefferies LL 18 maintained a price target of $35 per share from October 11, 2013, until the announcement of t
19 Proposed Transaction, at which point he upgraded it to $40 per share. However, in a repo 20 published on February 20, 2014, following confirmation from the Company that it was discussin 21 a possible transaction, Mr. Wiltamuth estimated that a buyout would likely represent between
22 $43 and $47 per share consideration for Safeway shareholders . The Proposed Consideratio
23 falls well below this range. 24 82. Analyst Short of Deutsche Bank Securities Inc. has been even more 25 regarding the Company’s valuation. Though Short has maintained a price target of $40 per sha
26 for the Company since October 11, 2013, she wrote in a report published on October 22, 201 27 that an acquisition of Safeway by Albertsons, led by defendant Cerberus Capital, would b 28 “reasonable” at as much as $56 per share . In a subsequent report published on February 2
I CLASS ACTION COMPLAINT - 25 - Case4:14-cv-02412-JSW Document1 Filed05/23/14 Page27 of 80
1 2014, Short estimated that any deal would likely fall in the range of $45 to $55 per share . Sh
2 also noted that a deal would likely produce at least $900 million in synergies and would be
3 especially attractive proposition for Albertsons, bringing its total number of stores to more th
4 2,400 and making it the second largest grocer nationally and the leading grocer in seventeen
5 twenty-four national markets.
6 83. Moreover, the Proxy Statement provides that on March 5, 2014, a
7 bidder, identified only as Company A, made an offer to acquire Safeway for $38.50 to $42.00
8 share in cash, including an assumed value of $4.70 per share for the Blackhawk shares
9 to Safeway shareholders.
10 84. Following the announcement of the Proposed Transaction in Short’s report
11 I March 7, 2014, Short described the merger as “a great deal” for Albertsons but warned that
12 undervalues Safeway:
13 A Great Deal for Cerberus ...
14 Assuming the deal closes, Cerberus would pay only —$9B (—$7.6B of cash and
15 assumed debt; 4.5x EV/EBITDA) for 1,335 [Safeway] stores, with an estimated real estate value of —$8B, taking Cerberus total grocery portfolio to —2,400 stores, 16 second only to KR (2,640) by store count. A $9B deal represents a very attractive price for Cerberus, as [Safeway’s] owned real estate may be worth around $8B by 17 our estimates and given the myriad opportunities for synergies (e.g.,
18 administrative/OH, advertising, rationalizing distribution, private brands, purchasing, etc.). We believe the current offer undervalues [Safeway]. 19 85. Short also highlighted an additional concern for Safeway shareholders by 20 that the CVRs do not represent guaranteed income: 21
22 This offer transfers risk onto [Safeway] shareholders given the difficulty in valuing the CVRs, which are non-transferable/non-tradable and, thus, illiquid. The cash 23 value of the CVRs may not be realized for up to four years for the Casa Ley CVR (shareholders will receive fair market value if business is not sold after four years) 24 and could expire worthless in two years for the PDC CVR.
25 86. Ajay Jain, an analyst at Cantor Fitzgerald LP, echoed this concern in a 26 analyst report published on March 7, 2014, writing that PDC will “remain a drain on cash flo 27 and a sale may not generate meaningful proceeds” for Safeway shareholders. 28
CLASS ACTION COMPLAINT - 26 -
Case4:14-cv-02412-JSW Document1 Filed05/23/14 Page28 of 80
1 87. Market activity since the announcement of the Proposed Transaction also suggest 2 that the $40 price tag touted by defendants is unrealistic. The Company’s shares have traded wel
3 below the Proposed Consideration, dropping 2% the day following the announcement and closin 4 at $38.88 on March 10, 2014, more than a dollar less than the Proposed Consideration. Safeway’ 5 stock has continued to trade well below the Proposed Consideration in the month since th
6 Proposed Transaction was announced, closing at $37.97 on April 8, 2014. 7 88. The reaction of analysts and the market to the Proposed Transaction has bee 8 reinforced by the fact that it is a historically cheap deal. According to data compiled 1
9 Bloomberg, the Proposed Transaction is the food retail industry’s lowest valuation in almost 10 decade as similar-sized deals have a median transaction multiple of 9.9 times earnings bef 11 interest, taxes, depreciation, and amortization (“EBITDA”). Meanwhile, the EBITDA multiple 12 the Proposed Transaction is just 5.5 times Safeway’s last twelve months EBITDA of $1.6 billi 13 Applying the median multiple to the Company’s last twelve months EBITDA creates an impl 14 transaction value of $15.8 billion, or more than $67 per share . A more conservative comparis 15 might be Kroger’s 2013 acquisition of Harris Teeter Supermarkets Inc. which had a multiple 16 just 7 times EBITDA. However, the implied transaction value for Safeway based on this low 17 multiple is still $11.2 billion, or nearly $48 per share . 18 89. The Proposed Consideration plainly undervalues Safeway’s core and non-c 19 assets and represents a grossly inadequate premium for a company of its size and stature in th 20 food retail industry. Worse yet, only a portion of the Proposed Consideration is guaranteed and i 21 actual economic value to Company shareholders may in fact be substantially less than the $40 p 22 share figure claimed by defendants.
23 SELF-DEALING
24 90. Because the Individual Defendants dominate and control the business and 25 affairs of Safeway and have access to material, non-public information concerning Safeway’
26 financial condition and business prospects, there exists an imbalance and disparity of knowledg 27 and economic power between them and the public shareholders of Safeway. Therefore, it i
28 I inherently unfair for the Individual Defendants to execute and pursue any merger or acquisiti
I CLASS ACTION COMPLAINT - 27 - Case4:14-cv-02412-JSW Document1 Filed05/23/14 Page29 of 80
1 under which they will reap disproportionate benefits to the exclusion of obtaining the b
2 shareholder value reasonably available. Nonetheless, the Proposed Transaction represents
3 effort by the Individual Defendants to aggrandize their own financial position and interests at
4 expense of and to the detriment of the Class (as defined herein) by denying the Class memb
5 their shareholders’ rights by selling Safeway via an unfair process and at an inadequate pri
6 Accordingly, the Proposed Transaction will benefit the Individual Defendants at the expense
7 Safeway shareholders.
8 91. Instead of attempting to negotiate an agreement reflecting the best
9 I reasonably available for Safeway shareholders who they are duty-bound to serve, the
10 Defendants disloyally placed their own interests first, and tailored the terms and conditions of th
11 Proposed Transaction to meet their own personal needs and objectives by agreeing to sell th
12 Company to Albertsons for an inadequate consideration. Accordingly, the Proposed Transactio
13 will improperly benefit the defendants at the expense of Safeway’s public shareholders’ rights t
14 receive the best consideration reasonably available for their Company shares. For example
15 defendant Rogers is set to become President and CEO of the post-merger company and therefor
16 will receive unique benefits as a result of the Proposed Transaction. Meanwhile, Safeway’
17 employees at the Vice President level or above are not given positions at the post-merger compan
18 and will received sizeable severance awards under Safeway’s newly-adopted Severance Plan. O
19 February 12, 2014, the Executive Compensation Committee of the Board adopted and approve
20 the Severance Plan which provide for the following compensation in the event of a
21 Termination,” which includes a change-in-control:
22 • continued payment of base salary until the second annual anniversary, in the case of the Chief Executive Officer, or the 18 month anniversary, in the 23 case of each Executive Vice President, of the termination date;
24 • upon attainment of the performance criteria with respect to the annual cash 25 bonus for the year in which the termination occurs, a pro-rated bonus payable at the same time bonuses are paid to the Company’s executives 26 generally; and
27 • payment of COBRA premiums, or if eligible, participant contributions 28 under the Safeway Inc. Welfare Benefits Plan for Retirees, or the
I CLASS ACTION COMPLAINT - 28 - Case4:14-cv-02412-JSW Document1 Filed05/23/14 Page30 of 80
equivalent, until the second annual anniversary, in the case of the Chief 1 Executive Officer, or the 18 month anniversary, in the case of each
2 Executive Vice President, of the termination date.
3 92. Additionally, if an executive is terminated during the twenty-four-month
4 I following a change-in-control, the executive is entitled to the following payments under
5 I Severance Plan:
6 • a lump sum payment equal to the executive officer’s base salary for two 7 years, in the case of the Chief Executive Officer, or 18 months, in the case of each Executive Vice President; 8
9 • a lump sum payment equal to the executive officer’s target cash bonus opportunity for the fiscal year of termination; and 10 • payment of COBRA premiums, or if eligible, participant contributions 11 under the Safeway Inc. Welfare Benefits Plan for Retirees, or the
12 equivalent, until the second annual anniversary, in the case of the Chief Executive Officer, or the 18 month anniversary, in the case of each 13 Executive Vice President, of the termination date.
14 93. Under the newly-adopted Severance Plan, defendant Edwards is also protected in
15 the event that his employment with the post-merger company does not last. According to
16 terms of the Severance Plan and based on the most recently disclosed compensation
17 defendant Edwards will receive more than $3.5 million in severance pay if he is terminated
18 two years of the completion of the Proposed Transaction.
19 94. In addition to guaranteeing to Safeway insiders benefits that are not available
20 common shareholders, the Severance Plan also functions as a de facto deal preclusive d
21 Prior to its adoption, Safeway had a long-standing policy of not offering its executive o
22 contractual change-in-control or severance payments. The Company’s Proxy Statement on
23 DEF 14A filed with the SEC on April 1, 2013, discloses:
24 We have not historically entered into severance or change in control agreements 25 with our executive officers providing for cash payments in the event of the executive’s termination, whether such termination is voluntary, for cause or 26 otherwise. We believe that equity-based compensation motivates our executive 27 officers to increase the market value of our stock and sufficiently aligns our executives’ interests with those of the Company and our stockholders. 28
I CLASS ACTION COMPLAINT - 29 - Case4:14-cv-02412-JSW Document1 Filed05/23/14 Page31 of 80
1 However, the Company reversed this position in February 2014 after negotiations with Albertso 2 were already under way. By that point, Albertsons had most likely made clear in the course
3 negotiations that it intended to keep the majority of Safeway’s management team following t 4 completion of the Proposed Transaction. Therefore, the Severance Plan would have no impact o
5 Cerberus Capital’s plan to acquire Safeway, but it puts any competing bidder in a position where 6 will be forced to either retain the Company’s existing management or pay millions of dollars 7 severance payments.
8 95. The Individual Defendants were further motivated to engage in this transaction 9 reasons that are not equally shared by other shareholders, such as plaintiff. Specifically 10 Safeway’s officers and directors will receive millions of dollars due to the accelerated vesting o 11 their equity awards guaranteed in the Proposed Transaction. In connection with his appoi 12 as Safeway’s CEO in May 2013, defendant Edwards was granted 85,213 in performance 13 that were not set to vest until the end of a three-year performance period. Under the I
14 Agreement, these performance shares will be now canceled immediately prior to the Propo
15 Transaction in exchange for compensation of more than $3.4 million. As of December 29, 20
16 defendant Edwards also had more than 200,000 in other unvested performance shares a 17 restricted stock units and nearly 300,000 in unvested options. These equity awards that rem 18 unvested immediately prior to the Proposed Transaction will be canceled in exchange for
19 merger consideration, resulting in millions of dollars in additional compensation to defen
20 I Edwards.
21 96. The Individual Defendants, in particular defendants Tauscher, Edwards, Gyani, 22 Sarin who hold officer and director positions at Blackhawk, will also benefit
23 from the planned Blackhawk distribution of Safeway’s Blackhawk shares. The Company 24 announced that the Blackhawk distribution could result in approximately $30 million in cash 25 savings per year for Blackhawk. Although Safeway’s common shareholders will be able 26 participate in these savings through their newly-acquired Blackhawk shares, the Individ 27 Defendants stand to gain much more from the Blackhawk distribution. As CEO, Chairman of 28 Board, and a director of Blackhawk, defendant Tauscher’s compensation is tied directly
I CLASS ACTION COMPLAINT - 30 - Case4:14-cv-02412-JSW Document1 Filed05/23/14 Page32 of 80
1 Blackhawk’s financial performance which will be significantly improved by the tax savin
2 Additionally, defendant Edwards is not currently eligible to receive director compensation
3 connection with his position at Blackhawk because he is considered an employee director
4 virtue of his positions at Safeway. Following the distribution, and provided defendant Edwa
5 remains a Blackhawk director, he will receive additional compensation.
6 97. As a result of defendants’ conduct, Safeway’s public stockholders have been
7 will continue to be denied the fair process and arm’s-length negotiated terms to which they
8 entitled in a sale of the Company. The consideration reflected in the Merger Agreement does
9 reflect the true inherent value of the Company that was known only to the Individual Defenda
10 as directors of Safeway, and Albertsons at the time the Proposed Transaction was announced.
11 98. In light of the foregoing, the Individual Defendants must, as their fidu
12 obligations require:
13 • withdraw their consent to the merger of Safeway with defendant Albertson and allow the shares to trade freely without impediments such as the 14 impractical “go-shop” period, matching rights, and termination fee
15 provisions;
16 • act independently so that the interests of Safeway’s public stockholders will be protected; 17
18 • adequately ensure that no conflicts of interest exist between their own interests and their fiduciary obligation to maximize stockholder value or, if 19 such conflicts exist, to ensure that all conflicts be resolved in the best interests of Safeway’s public stockholders; and 20
21 • solicit competing bids to Albertsons’ offer without the impediments discussed above to ensure that the Company’s shareholders are receiving 22 the maximum value for their shares.
23 THE FALSE AND MATERIALLY MISLEADING PROXY 24 99. In an attempt to secure shareholder approval of the unfair Proposed Transactio 25 Safeway filed the false and misleading Proxy with the SEC on April 17, 2014. As detailed herei 26 I the Proxy misrepresents and/or omits material information necessary for Safeway shareholders 27
28
I CLASS ACTION COMPLAINT - 31 - Case4:14-cv-02412-JSW Document1 Filed05/23/14 Page33 of 80
1 make an informed decision regarding whether to vote in favor of the Proposed Transaction or seek 2 appraisal of their shares - a direct contravention of Sections 14(a) and 20(a) of the Exchange Act.
3 100. Specifically, the Proxy fails to provide Company shareholders with mate
4 information and/or provides them with materially misleading information concerning (i)
5 process leading to the Proposed Transaction, including the inherent conflicts of interest of 6 negotiation parties; (ii) the material assumptions and inputs underlying the valuation analys 7 performed by Goldman Sachs and Greenhill in connection with the preparation of their respecti
8 fairness opinions; and (iii) the estimated financial projections/forecasts prepared by Compa 9 management and provided to and/or relied upon by Goldman Sachs and Greenhill for purposes 10 those analyses.
11 Disclosure Deficiencies Concerning the Conflicted Sales Process
12 101. With respect to the sales process that led to the Proposed Transaction, t
13 Background of the Merger section contained on pages 51-66 of the Proxy is materially deficient
14 that it fails to disclose:
15 (a) the assets of Safeway that were discussed between Robert Miller and
16 defendant Edwards in late August of 2013 (Proxy at 52);
17 (b) the synergistic value of a transaction between Albertsons and Safeway as of
18 September 5, 2013, according to Cerberus (Proxy at 52);
19 (c) the strategic initiatives pertaining to Safeway’s different geographic
20 initiatives that were discussed on or around September 16, 2013 (Proxy at 52);
21 (d) the amount Goldman Sachs believed a private equity firm would likely pay 22 to acquire Safeway as of October 17, 2013 (Proxy at 53);
23 (e) the estimated synergistic value of a proposed transaction between Albertsons 24 and Safeway as of early November of 2013 (Proxy at 54);
25 (f) the estimated value of Safeway’s real estate assets as of November 1, 2013
26 (Proxy at 54);
27 (g) the potential business opportunities that would result from a transaction
28 between Albertsons and Safeway as of November 1, 2013 (Proxy at 54);
I CLASS ACTION COMPLAINT - 32 - Case4:14-cv-02412-JSW Document1 Filed05/23/14 Page34 of 80
1 (h) the geographic regions that the Executive Committee of the Board deemed
2 Safeway lacked broad acceptance by customers as of February 12, 2014 (Proxy at 59);
3 (i) the fees received by Goldman Sachs for any prior services it rendered on
4 behalf of Safeway, Colony, or Pritzker (Proxy at 82-83);
5 (j) whether Goldman Sachs and/or its affiliates/employees have any
6 investments with or in any of the business entities involved in the Proposed Transaction (or
7 any affiliate of such entities) that would be directly impacted by the closing of the Proposed
8 Transaction (Proxy at 82-83); and
9 (k) the total compensation received by Greenhill for services rendered on behalf
10 I of SUPERVALU INC. in connection with the sale of New Albertson’s Inc. to an investor
11 group led by Cerberus (Proxy at 85).
12 102. The omission of this information renders the following statements in the
13 I false and/or materially misleading in contravention of the Exchange Act:
14 (a) From page 52 of the Proxy:
15 In late August 2013, Robert Miller, the Chief Executive Officer of Albertson’s LLC, contacted Robert Edwards, Safeway’s Chief Executive Officer, to make an 16 informal inquiry as to whether Safeway might want to discuss possible strategic transactions, including potentially a purchase or sale of certain assets, or a merger 17 of Safeway and Albertson’s LLC. In early September, advisors for Cerberus and Albertson’s LLC began a preliminary antitrust analysis concerning a potential 18 merger of Safeway and Albertson’s LLC, and representatives of Cerberus, which is the largest equityholder of Ultimate Parent, contacted Goldman Sachs to inquire 19 whether Safeway would be interested in discussing a potential transaction
20 involving Albertson’s LLC. After obtaining authorization of Safeway’s Non- Executive Chairman, T. Gary Rogers (the “Board Chairman”), Mr. Edwards asked
21 Goldman Sachs to respond to Cerberus on behalf of Safeway to request high level financial information about Albertson’s LLC for purposes of evaluating the
22 possibility of a business combination. Goldman Sachs was asked to make this request given Goldman Sachs’ mergers and acquisitions and financial expertise.
23 On September 5, 2013, Mr. Edwards and Mr. Miller met and had a general 24 conversation about the possibility of pursuing a strategic transaction. Although the parties discussed possible acquisition transactions, Mr. Miller indicated that his 25 preference would be to discuss a merger transaction because he believed it would produce substantial synergies. Thereafter, Safeway and NAI and Cerberus executed 26 a confidentiality agreement, and Cerberus provided Safeway with limited financial information and a preliminary estimate of synergies based on publicly available 27 information, and counsel to Cerberus and Albertson’s LLC provided Safeway’s antitrust counsel with a preliminary antitrust analysis. During the course of the 28 meeting, Mr. Edwards indicated that Safeway may want to sell certain of the
CLASS ACTION COMPLAINT - 33 - Case4:14-cv-02412-JSW Document1 Filed05/23/14 Page35 of 80
Dominick’s Finer Food stores in the Chicago market, and Mr. Miller expressed interest in the potential acquisition of the stores. On September 10, 2013, Safeway and NAI entered into a confidentiality agreement relating to the Dominick’s Finer 2 Food stores.
3 On September 16, 2013, the Executive Committee of the Board (the “Executive Committee”) met and discussed strategic initiatives related to Safeway’s different 4 geographic regions. The Executive Committee discussed the possibility of a strategic transaction with Albertson’s LLC or other grocery chains. The Executive 5 Committee concluded that it was not the right time to pursue a transaction
6 involving the sale of the entire company because Safeway was in the process of implementing a variety of strategic initiatives, the results of which were not yet
7 reflected in the value of the Company’s common stock, which closed at $28.24 on September 16, 2013. The Executive Committee and management were focused on
8 selling stores or other assets in the Chicago region in order to eliminate recurring losses.
9 (b) From pages 53-54 of the Proxy:
10 Also at the Board meeting, Safeway’s senior management team presented their 11 initial analysis of the potential synergies that could be realized from a strategic combination with Albertson’s LLC. Goldman Sachs advised the Board as to the 12 amount that they believed a private equity firm was likely to pay to acquire Safeway, which was likely to be less than what Albertson’s LLC or another 13 strategic company would likely pay because of the potential synergies that could be realized by a strategic acquiror. The Board also met with an outside consulting firm 14 and reviewed an analysis prepared by that firm regarding Safeway’s operations and ways to optimize its geographic portfolio and strengthen its core grocery business. 15 The Board concluded that it would not pursue a sale of Safeway at that time, but
16 rather that it would continue to implement its current business plan and implement a strategy to return cash to the stockholders that it expected to receive from the
17 Canadian Sale. The Board unanimously approved an increase in the authorization under Safeway’s stock repurchase program by $2.0 billion and authorized
18 management to enter into a Rule 10b5-1 plan to repurchase shares of Company common stock commencing after the receipt of the proceeds from the Canadian 19 Sale.
20 * * *
21 Also following the publication of the Reuters article, Mr. Miller again contacted Mr. Edwards to express Albertson’s LLC’s continued interest in acquiring 22 Safeway. After consulting with the Board Chairman, on November 1, 2013, Mr. Edwards, two other Safeway executives and Goldman Sachs met with Mr. Tessler, 23 Mr. Miller and other executives of Cerberus and Albertson’s LLC. At that meeting, Cerberus and Albertson’s LLC expressed their continued interest in acquiring 24 Safeway. The discussions remained at a high level and included a discussion of
25 possible synergies that could be realized from a combination of the companies based on Cerberus’ and Albertson’s LLC’s review of publicly available
26 information concerning Safeway, the estimated value of Safeway’s real estate, and business opportunities arising from a potential combination of the two companies.
27 Mr. Edwards stated that the Board had not decided to pursue a potential sale or other transaction, and that Safeway’s purpose in meeting with Albertson’s LLC and 28 Cerberus was to determine whether it was desirable to engage in discussions with Albertson’s LLC and Cerberus to pursue a potential transaction. At that meeting,
CLASS ACTION COMPLAINT - 34 - Case4:14-cv-02412-JSW Document1 Filed05/23/14 Page36 of 80
Mr. Tessler stated that Cerberus contemplated that, if a transaction were to be completed between Albertson’s LLC and Safeway, Mr. Miller would be the Chairman of the combined company and Mr. Edwards would be Chief Executive 2 Officer of the combined company. Mr. Edwards and Goldman Sachs made it clear that if the parties were to continue to discuss a sale transaction, and assuming Mr. 3 Edwards would have that role, there would be no discussion of Mr. Edwards’ employment terms or compensation. 4 On November 4, 2013, the Executive Committee met to discuss the possibility of 5 pursuing a potential transaction with Albertson’s LLC and the separate synergy
6 analyses that had been developed by each of Cerberus and Albertson’s LLC, on the one hand, and Safeway’s management, on the other. Mr. Edwards and Goldman
7 Sachs provided a detailed summary of the November 1 meeting, including that Albertson’s LLC and Cerberus stated their view that Mr. Edwards would be Chief
8 Executive Officer of the combined company if a transaction were to occur. The Executive Committee decided that it was appropriate to continue discussions with 9 Cerberus and Albertson’s LLC given the amount of synergies that could potentially be realized, which might enable Albertson’s LLC to pay an attractive price to 10 Safeway’s stockholders. The Executive Committee discussed Albertson’s LLC’s ability to obtain the equity and debt financing that would be needed to finance a 11 transaction. The Executive Committee authorized management to work with Cerberus and Albertson’s LLC to provide a more fully developed analysis of the 12 synergies that could result from a merger of Safeway and Albertson’s LLC and that could form the basis for an initial indication of value from Cerberus and 13 Albertson’s LLC. However, the Executive Committee concluded that Safeway would not permit Cerberus and Albertson’s LLC to undertake a due diligence 14 review or engage in detailed discussions regarding a transaction until they put forth an acquisition proposal with a price and other key terms that were compelling and 15 could form the basis for such discussions.
16 (c) From pages 59-60 of the Proxy:
17 On February 12, 2014, the Executive Committee met to discuss the February 6
18 Proposal. Goldman Sachs and Latham updated the Executive Committee on the terms of the February 6 Proposal. Safeway’s management estimated that the total 19 value of the proceeds from the sales of the Company’s interest in Casa Ley and PDC was approximately $0.10 to $0.50 less than what Cerberus estimated. 20 Although the Executive Committee believed that there should still be more negotiation on price, the Executive Committee concluded that the total implied 21 value of the February 6 Proposal was in a range that the Board would find to be in the best interests of Safeway and its stockholders and therefore support moving 22 forward with the negotiation of an agreement. The Executive Committee noted that the expected year-end and fourth quarter results showed an increase in identical 23 store same store sales compared to the prior year and that recent merchandising initiatives had produced positive results. Nonetheless, the Executive Committee 24 was concerned that there were substantial risks associated with Safeway executing
25 its business plan on a standalone basis, especially from increased competition in certain geographic regions where Safeway did not enjoy broad customer
26 acceptance. The Executive Committee also noted that given the Canadian Sale and the disposition of four Dominick’s Finer Foods stores in Chicago, and soon
27 Blackhawk, the value of Company common stock would depend solely on the performance of core U.S. grocery business and based on historical and expected 28 results would likely continue to trade at a discount compared to peer companies.
CLASS ACTION COMPLAINT - 35 - Case4:14-cv-02412-JSW Document1 Filed05/23/14 Page37 of 80
(d) From pages 82-83 of the Proxy:
2 Goldman Sachs and its affiliates are engaged in advisory, underwriting and financing, principal investing, sales and trading, research, investment management 3 and other financial and non-financial activities and services for various persons and entities. Goldman Sachs and its affiliates and employees, and funds or other entities 4 in which they invest or with which they co-invest, may at any time purchase, sell, hold or vote long or short positions and investments in securities, derivatives, loans, 5 commodities, currencies, credit default swaps and other financial instruments of
6 Safeway, Blackhawk, Ultimate Parent, any of their respective affiliates and third parties, including affiliates and portfolio companies of (i) Cerberus, a significant
7 shareholder of Ultimate Parent, and (ii) Colony Financial, Inc. (“Colony”), Pritzker Organization, L.L.C. (“Pritzker”) or any other affiliate of a signatory to the Parent
8 Entities’ equity commitment letters for the Merger (each, an “Equity Investor”), or any currency or commodity that may be involved in the transaction contemplated 9 by the Merger Agreement for the accounts of Goldman Sachs and its affiliates and employees and their customers. Goldman Sachs acted as financial advisor to 10 Safeway in connection with, and participated in certain of the negotiations leading to, the transactions contemplated by the Merger Agreement. Goldman Sachs has 11 provided certain investment banking services to Safeway and its affiliates from time to time for which the Investment Banking Division of Goldman Sachs has 12 received, and may receive, compensation, including having acted as financial advisor to Safeway with respect to the sale of its Canadian operations in June 2013. 13 Goldman Sachs also has provided certain investment banking services to Blackhawk and its affiliates from time to time for which the Investment Banking 14 Division of Goldman Sachs has received, and may receive, compensation, including having acted as joint book-running manager with respect to a public 15 offering of 11,500,000 shares of Class A Common Stock of Blackhawk by Safeway
16 and other selling shareholders in April 2013. Goldman Sachs also has provided certain investment banking services to Ultimate Parent and its affiliates from time
17 to time for which the Investment Banking Division of Goldman Sachs has received, and may receive, compensation, including having acted as joint lead arranger and
18 lender with respect to a term loan (aggregate principal amount of $300 million) provided to Albertson’s LLC in September 2013. Goldman Sachs also has provided 19 certain investment banking services to Cerberus and its affiliates and portfolio companies from time to time for which the Investment Banking Division of 20 Goldman Sachs has received, and may receive, compensation, including having acted as co-financial advisor with respect to the sale of GeoEye Inc., a former 21 portfolio company of Cerberus, in July 2012, as co-lead underwriter with respect to an offering of 1.924% Debentures due 2019 (aggregate principal amount of €500 22 million) of BAWAG P.S.K., a portfolio company of Cerberus, in September 2012, as joint lead arranger and lender with respect to a term loan (aggregate principal 23 amount of $500 million) provided to NewPage Corporation, a former portfolio company of Cerberus, in December 2012, as joint book-runner with respect to a 24 public offering of 632,500,000 shares of common stock by Aozora Bank, Ltd., a
25 portfolio company of Cerberus, in January 2013, as sole lender with respect to a mezzanine loan (aggregate principal amount of $750 million) and a floating rate
26 mortgage loan (aggregate principal amount of $1 billion) to Kyo-Ya Hotels, a portfolio company of Cerberus, in January 2013, as joint lead arranger and lender
27 with respect to a term loan (aggregate principal amount of $1.5 billion) provided to SUPERVALU Inc., a corporation into which Cerberus had agreed to make an 28 investment, in March 2013, as joint lead arranger and lender with respect to a term loan (aggregate principal amount of $420 million) provided to Tower International,
CLASS ACTION COMPLAINT - 36 - Case4:14-cv-02412-JSW Document1 Filed05/23/14 Page38 of 80
Inc. a portfolio company of Cerberus, in April 2013, as joint book-runner with respect to an offering of 6.750% Debentures due 2021 (aggregate principal amount of $400 million) of SUPERVALU Inc. in May 2013, as dealer manager with 2 respect to a tender offer to purchase existing 8.0% Senior Notes due 2016 of SUPERVALU Inc. in June 2013, as joint book-runner with respect to a public 3 offering of 7,888,122 shares of common stock by Tower International, Inc. in July 2013, as co-financial advisor with respect to the acquisition by Cerberus of the 4 assets of Bankia Habitat S.L.U. in September 2013, as co-lead underwriter with respect to an offering of 8.125% Debentures due 2023 (aggregate principal amount 5 of €300 million) of BAWAG P.S.K. in October 2013, and as joint lead book-runner
6 and joint lead arranger with respect to the refinancing of an existing senior secured term loan agreement (aggregate principal amount of $1.5 billion) of SUPERVALU
7 Inc. in January 2014. During the two-year period ended March 6, 2014, the Investment Banking Division of Goldman Sachs has received compensation for
8 financial advisory and/or underwriting services provided directly to Cerberus and/or to its affiliates and portfolio companies (which may include companies that 9 are not controlled by Cerberus) of approximately $124 million. Goldman Sachs also has provided certain investment banking services to Colony and its affiliates 10 and portfolio companies from time to time for which the Investment Banking Division of Goldman Sachs has received, and may receive, compensation, 11 including having acted as joint book-running manager with respect to an offering of 5.00% Convertible Senior Notes due 2023 (aggregate principal amount of $175 12 million) of Colony in April 2013. Goldman Sachs also has provided certain investment banking services to Pritzker and its affiliates and portfolio companies 13 from time to time for which the Investment Banking Division of Goldman Sachs has received, and may receive, compensation, including having acted as joint 14 booking-running manager with respect to an offering of 7.625% Senior Notes due 2021 (aggregate principal amount of $275 million) by TMS International Corp., a 15 portfolio company of Pritzker, in October 2013, as joint lead arranger, joint book-
16 runner and lender with respect to a term loan (aggregate principal amount of $475 million) provided to TMS International Corp. in October 2013, and as joint lead
17 arranger, joint book-runner and lender with respect to a senior unsecured bridge loan facility (aggregate principal amount of $300 million) provided to Crystal
18 Acquisition Company, Inc. and Crystal Merger Sub, Inc., each a portfolio company of Pritzker, in October 2013. Goldman Sachs may also in the future provide 19 investment banking services to Safeway, Ultimate Parent, Blackhawk and their respective affiliates, including Cerberus, the Equity Investors and their respective 20 affiliates and portfolio companies, for which the Investment Banking Division of Goldman Sachs may receive compensation. Affiliates of Goldman Sachs also may 21 have co-invested with Cerberus, the Equity Investors and their respective affiliates from time to time and may have invested in limited partnership units of affiliates of 22 Cerberus or the Equity Investors from time to time and may do so in the future.
23 (e) From page 85 of the Proxy:
24 Greenhill acted as financial advisor to the Board in connection with the Merger and
25 received a fee of $2 million for delivery of its opinion, which was not contingent upon closing of the Merger. Greenhill will also be reimbursed for its reasonable
26 expenses incurred in connection with performing its services. In addition, the Company has agreed to indemnify Greenhill for certain liabilities and expenses that
27 may arise out of Greenhill’s engagement. Greenhill’s opinion was approved by its fairness committee. During the two years preceding the date of its opinion, 28 Greenhill was not engaged by, did not perform any services for or receive any compensation from, the Company or any other parties to the Merger Agreement
CLASS ACTION COMPLAINT - 37 - Case4:14-cv-02412-JSW Document1 Filed05/23/14 Page39 of 80
other than (i) the amounts described above and (ii) services performed from 1 December 2011 to October 2013 for Cerberus Real Estate Capital Management, LLC in connection with the formation and capitalization of Cerberus Institutional 2 Real Estate Partners III, L.P. (a $1.426 billion fund), for which Cerberus Real Estate Capital Management, LLC agreed to pay approximately $16.5 million in 3 placement fees and to reimburse certain of Greenhill’s out-of-pocket expenses. In addition, Greenhill performed services for SUPERVALU INC. in connection with 4 the sale of its subsidiary, NAI, to an investor group led by Cerberus, for which SUPERVALU INC. paid Greenhill a transaction fee and reimbursed certain of 5 Greenhill’s out-of-pocket expenses.
6 103. These statements in the Proxy are rendered false and/or misleading by
7 omissions identified in paragraph 102, supra because they give shareholders a materia
8 incomplete and distorted picture of the sales process underlying the Proposed Transaction, t
9 various alternatives available to (and considered by) defendants other than the Propos
10 Transaction, and the efforts taken (or not taken) to ensure that no conflicts of interest tainted t
11 negotiation process, thus rendering it unfair to Plaintiff and the other members of the Class.
12 Disclosure Deficiencies Concerning the Valuation Analyses of Goldman Sachs and Greenhill
13 104. Goldman Sachs’ Selected Companies Analysis. The description of Go
14 Sachs’ Selected Companies Analysis on pages 77-79 of the Proxy is materially deficient because
15 I fails to disclose:
16 (a) the individually observed (i) Enterprise Value (“EV”) / Last Twelve Month
17 I (“LTM”) Earnings before Interest, Taxes, Depreciation, and Amortization (“EBITDA”); and (ii)
18 EV / One Year Forward EBITDA multiples for each of the selected comparable companies used
19 in the analysis;
20 (b) whether Goldman Sachs performed any benchmarking analysis for the
21 Company in relation to the selected comparable entities and, if so, the scope of such analysis;
22 I and
23 (c) the adjustments made, if any, for purposes of accounting for the value of
24 Safeway’s “other assets” in the “per share” indications of value derived as a result of the
25 I analysis.
26 105. The omission of this information renders the following statements in the
27 I false and/or materially misleading in contravention of the Exchange Act:
28 (a) From page 65 of the Proxy:
I CLASS ACTION COMPLAINT - 38 - Case4:14-cv-02412-JSW Document1 Filed05/23/14 Page40 of 80
On March 6, 2014, the Board held a special meeting after the close of the trading market. The Board again discussed the status of the preliminary non-binding indication of interest submitted by Company A. The Board concluded that 2 Company A was not likely to be in a position to submit a more complete proposal for a number of weeks and, considering the uncertainty surrounding a proposal 3 from Company A, determined to proceed with the Albertson’s LLC transaction. Goldman Sachs and Latham updated the Board on the final negotiations that had 4 occurred with Cerberus, Albertson’s LLC and Schulte Roth and that the terms of the merger agreement and all related documents had been finalized. Goldman Sachs 5 then delivered its oral opinion to the Board, which opinion was confirmed in
6 writing, to the effect that, as of March 6, 2014, and based upon and subject to the factors, procedures, assumptions, qualifications and limitations set forth therein, the
7 Per Share Merger Consideration (excluding the Additional Cash Merger Consideration) to be paid to the holders of shares of Company common stock
8 pursuant to the Merger Agreement was fair from a financial point of view to such holders. Greenhill then delivered its oral opinion to the Board, which opinion was 9 confirmed in writing, to the effect that, as of March 6, 2014, and based upon and subject to the factors, procedures, assumptions, qualifications and limitations set 10 forth therein, the sum of (i) the Per Share Merger Consideration (excluding the Additional Cash Merger Consideration) to be received by the holders of shares of 11 Company common stock pursuant to the Merger Agreement and (ii) the separate per share distribution to the holders of shares of Company common stock in the 12 Blackhawk Distribution was fair, from a financial point of view, to such holders. The Board then approved and adopted the Merger Agreement and, subject to the 13 terms of the Merger Agreement, recommended approval and adoption of the Merger Agreement by the Company’s stockholders and authorized the officers of 14 Safeway to sign the Merger Agreement.
15 (b) From page 72 of the Proxy:
16 Goldman Sachs rendered its opinion to the Board that, as of March 6, 2014, and
17 based upon and subject to the factors and assumptions set forth therein, the Per Share Merger Consideration (excluding the Additional Cash Merger Consideration)
18 to be paid to the holders of shares of Company common stock pursuant to the Merger Agreement was fair from a financial point of view to such holders.
19 The full text of the written opinion of Goldman Sachs, dated March 6, 2014, which 20 sets forth assumptions made, procedures followed, matters considered and limitations on the review undertaken in connection with the opinion, is attached to 21 this Proxy Statement as Annex D. Goldman Sachs provided its opinion for the information and assistance of the Board in connection with its consideration of the 22 transactions contemplated by the Merger Agreement. The Goldman Sachs opinion is not a recommendation as to how any holder of shares of Company common 23 stock should vote with respect to the transactions contemplated by the Merger Agreement, or any other matter. Goldman Sachs expressed no opinion as to the 24 value of the shares of Blackhawk Class A common stock or Class B common stock
25 or as to the fairness or any other aspect of the distribution of such shares in the Blackhawk Distribution.
26 (c) From pages 77-79 of the Proxy:
27 Selected Companies Analysis . Goldman Sachs reviewed and compared certain 28 financial information, ratios and public market multiples for Safeway WholeCo and Safeway Ex-Blackhawk to the corresponding financial information, ratios and
CLASS ACTION COMPLAINT - 39 - Case4:14-cv-02412-JSW Document1 Filed05/23/14 Page41 of 80
public market multiples for the following publicly traded corporations in the 1 grocery retail industry (collectively referred to as the selected companies):
2 • The Kroger Co.;
3 • SUPERVALU INC.;
4 • Roundy’s Inc.;
5 • Ingles Markets Inc.;
6 • Harris Teeter Supermarkets, Inc.;
7 • Etablissements Delhaize Frères et Cie “Le Lion” (Delhaize Group); and
8 • Koninklijke Ahold NV (Ahold).
9 Although none of the selected companies is directly comparable to Safeway 10 WholeCo or Safeway Ex-Blackhawk, the companies included were chosen because they are publicly traded companies with operations that for purposes of analysis 11 may be considered similar to certain operations of Safeway WholeCo and Safeway Ex-Blackhawk. 12 Goldman Sachs calculated and compared various financial multiples and ratios 13 based on information it obtained from estimates from IBES, research analyst reports and market information as of February 28, 2014 (with all estimates 14 calendarized to December). With respect to each of (i) the selected companies, (ii) Safeway WholeCo and (iii) Safeway Ex-Blackhawk, Goldman Sachs calculated the 15 following EBITDA multiples:
16 • enterprise value as a multiple of EBITDA for the last twelve-months ended
17 December 31, 2009 to December 31, 2013;
18 • enterprise value as a multiple of the estimated one-year forward EBITDA for each company from 2009 to 2013, based on data published by Bloomberg, Capital IQ 19 and IBES; and
20 • enterprise value as a multiple of estimated EBITDA for the twelve-months ending December 31, 2014 and 2015. 21 The results of these analyses are summarized as follows: 22
23
24
25
26
27
28
CLASS ACTION COMPLAINT - 40 - Case4:14-cv-02412-JSW Document1 Filed05/23/14 Page42 of 80
Based on its review of the foregoing calculations and applying its professional 1 S.Itd Cmpni Sk.y Sfrw. En"riw ' Wh1C Who1C E-BIL E-BiIh.wk nIIipl Range Median DjrbdI (Uidiqurbed UDdIrb 2 2013 EBITDA 12x-68x 7x 6-2x 49x Ox 46x 2014 EL EBITDA clx. 3 ô9x 5x 6.3x 4x 62 47 201EstEBITDA 50x-66x $$x 61x 4x 6lx 47x
4 Market information asefFebiiay22O14 Assumes widistuzbed price per share of Company common stock of S224 per share as of September 16 2011 E.B1ackhawk adtited for the pro. 5 rata value per share of Safeway ownership of Bckiia* Class B common stock PFQ-rata value per share of Blackliawk Class H corninoi stock was calculated based on the cIoin pnce per share of Blackhawk Class A common stock, the pproximey 37 mI]ion chare of BLc]±awk Class B common stock omi] by Safe and the filly dhrted outmndrig shares of Company cornmon stock. 6
En"rise VIueFLtM1iBLII)A Multiple 2009-2113 2013 2013 7 A,ernc (Dbkh. FPO) Pet-EIwkIPO SatèwayWholeCo 5th 47x bx 8 Safeway Ex.B]ackhawk NA NA Selected Companies 4x - 62x 42 47x- 7x Selected Companies Median 551 56x 6-1x 9 Safeway WhaleCo as % of Mediin 92% 92%
Value lODE Yr EBLTDA Multiple 10 LiIterprIr FDrward 2liU'J-I3 2013 Avra (Pr-DtcIthntIP(J} Pt-EIakbwIIPO
11 Safeway WholeCo 51x 49x 53x SafcwayEx.B]ackhawk NA 51 Meted Companies Range 47x- 65x 42- 6h 4x- 7x 12 Selected CopaniecMedian 55 57 2x Safeway WholeCo as % of Mediin 93% mo 85%
13 judgment, Goldman Sachs applied enterprise value to EBITDA multiples ranges of
14 4.7x to 5.8x and 4.7x to 5.5x to Safeway Ex-Blackhawk’s 2014E and 2015E EBITDA, respectively, to derive a range of illustrative enterprise values of Safeway
15 Ex-Blackhawk. By subtracting total adjusted net debt for Safeway from this range and dividing by the fully diluted outstanding shares of Company common stock as
16 of December 29, 2013, this resulted in illustrative values per share of Company common stock for Safeway Ex-Blackhawk, rounded to the nearest five cents, 17 ranging from $24.95 to $32.10 and $26.85 to $32.40, respectively. Goldman Sachs also applied the same enterprise value to EBITDA multiples ranges to U.S. 18 Grocery’s 2014E and 2015E EBITDA, respectively, to derive a range of illustrative enterprise values of U.S. Grocery. By subtracting total adjusted net debt for 19 Safeway from this range and dividing by the fully diluted outstanding shares of Company common stock as of December 29, 2013 this resulted in illustrative 20 values per share of Company common stock for U.S. Grocery, rounded to the nearest five cents, ranging from $23.20 to $29.95 and $24.50 to $29.60, 21 respectively.
22 106. These statements in the Proxy are rendered false and/or misleading by
23 omissions identified in paragraph 105, supra because such omissions are essential to shareholders
24 ability to properly evaluate the analysis performed by Goldman Sachs. For example, without th
25 individually observed multiples, shareholders are unable to determine for themselves whether the
26 multiples applied to the financials for Safeway are representative of the selected comparable
27 companies that are most similar to Safeway. Likewise, the results of a proper benchmarking
28
I CLASS ACTION COMPLAINT - 41 - Case4:14-cv-02412-JSW Document1 Filed05/23/14 Page43 of 80
1 I analysis would allow shareholders to determine whether the selected comparable companies
2 actually appropriate for use in determining an implied value for Safeway shares.
3 107. Goldman Sachs’ Selected Transactions Analysis. The description of
4 Sachs’ Selected Transactions Analysis on pages 79-80 of the Proxy is materially deficient becau
5 it fails to disclose:
6 (a) the individually observed (i) EV / LTM EBITDA; (ii) EV / LTM EBITDA
7 (post 2007); and (iii) EV / LTM EBITDA (> $1 Billion EV) multiples for each of the
8 transactions selected for use in the analysis;
9 (b) whether Goldman Sachs performed any benchmarking analysis for the
10 I Company in relation to the target entities in the selected transactions used in the analysis and, if
11 so, the scope of such analysis; and
12 (c) the adjustments made, if any, for purposes of accounting for the value of
13 I Safeway’s “other assets” in the “per share” indications of value derived as a result of the
14 I analysis.
15 108. The omission of this information renders the following statements in the
16 I false and/or materially misleading in contravention of the Exchange Act:
17 (a) From page 65 of the Proxy:
18 On March 6, 2014, the Board held a special meeting after the close of the trading market. The Board again discussed the status of the preliminary non-binding 19 indication of interest submitted by Company A. The Board concluded that Company A was not likely to be in a position to submit a more complete proposal 20 for a number of weeks and, considering the uncertainty surrounding a proposal from Company A, determined to proceed with the Albertson’s LLC transaction. 21 Goldman Sachs and Latham updated the Board on the final negotiations that had occurred with Cerberus, Albertson’s LLC and Schulte Roth and that the terms of 22 the merger agreement and all related documents had been finalized. Goldman Sachs
23 then delivered its oral opinion to the Board, which opinion was confirmed in writing, to the effect that, as of March 6, 2014, and based upon and subject to the
24 factors, procedures, assumptions, qualifications and limitations set forth therein, the Per Share Merger Consideration (excluding the Additional Cash Merger
25 Consideration) to be paid to the holders of shares of Company common stock pursuant to the Merger Agreement was fair from a financial point of view to such 26 holders. Greenhill then delivered its oral opinion to the Board, which opinion was confirmed in writing, to the effect that, as of March 6, 2014, and based upon and 27 subject to the factors, procedures, assumptions, qualifications and limitations set forth therein, the sum of (i) the Per Share Merger Consideration (excluding the 28 Additional Cash Merger Consideration) to be received by the holders of shares of
I CLASS ACTION COMPLAINT - 42 - Case4:14-cv-02412-JSW Document1 Filed05/23/14 Page44 of 80
Company common stock pursuant to the Merger Agreement and (ii) the separate 1 per share distribution to the holders of shares of Company common stock in the Blackhawk Distribution was fair, from a financial point of view, to such holders. 2 The Board then approved and adopted the Merger Agreement and, subject to the terms of the Merger Agreement, recommended approval and adoption of the 3 Merger Agreement by the Company’s stockholders and authorized the officers of Safeway to sign the Merger Agreement. 4 (b) From page 72 of the Proxy: 5
6 Goldman Sachs rendered its opinion to the Board that, as of March 6, 2014, and based upon and subject to the factors and assumptions set forth therein, the Per
7 Share Merger Consideration (excluding the Additional Cash Merger Consideration) to be paid to the holders of shares of Company common stock pursuant to the
8 Merger Agreement was fair from a financial point of view to such holders.
9 The full text of the written opinion of Goldman Sachs, dated March 6, 2014, which sets forth assumptions made, procedures followed, matters considered and 10 limitations on the review undertaken in connection with the opinion, is attached to this Proxy Statement as Annex D. Goldman Sachs provided its opinion for the 11 information and assistance of the Board in connection with its consideration of the transactions contemplated by the Merger Agreement. The Goldman Sachs opinion 12 is not a recommendation as to how any holder of shares of Company common stock should vote with respect to the transactions contemplated by the Merger 13 Agreement, or any other matter. Goldman Sachs expressed no opinion as to the value of the shares of Blackhawk Class A common stock or Class B common stock 14 or as to the fairness or any other aspect of the distribution of such shares in the Blackhawk Distribution. 15 (c) From pages 79-80 of the Proxy: 16
17 Selected Transactions Analysis . Goldman Sachs analyzed certain publicly available information relating to the following selected transactions in the retail
18 grocery industry since April 2002:
19 • TPG Capital, L.P.’s acquisition of Gelson’s Markets (Arden Group, Inc.) announced in December 2013; 20 • Albertson’s LLC’s acquisition of United Supermarkets, LLC announced in 21 September 2013;
22 • The Kroger Co.’s acquisition of Harris Teeter Supermarkets, Inc. announced in July 2013; 23 • a Cerberus led consortium’s acquisition of SUPERVALU Inc. (21.2% stake) 24 announced in January 2013;
25 • Ultimate Parent’s acquisition of SUPERVALU retail (New Albertson’s, Inc.)
26 announced in January 2013;
27 • BI-LO, LLC’s acquisition of Winn-Dixie Stores, Inc. announced in December 2011;
28
CLASS ACTION COMPLAINT - 43 - Case4:14-cv-02412-JSW Document1 Filed05/23/14 Page45 of 80
• CVC Capital Partners Limited and Leonard Green & Partners, L.P.’s acquisition of BJ’s Wholesale Club, Inc. announced in June 2011;
2 • The Great Atlantic & Pacific Tea Company’s acquisition of Pathmark Stores, Inc. announced in March 2007; 3 • Whole Foods Market, Inc.’s acquisition of Wild Oats Market, Inc. announced in 4 February 2007;
5 • Apollo Global Management, LLC’s acquisition of Smart & Final Inc. announced
6 in February 2007;
7 • Sun Capital Partners, Inc.’s acquisition of Marsh Supermarkets, Inc. announced in April 2006;
8 • SUPERVALU Inc.’s acquisition of Albertsons, Inc. (core food retailing) 9 announced in January 2006;
10 • a Cerberus led consortium’s acquisition of Albertsons, Inc. (non-core food retailing) announced in January 2006; 11 • Lone Star Fund V (U.S.), L.P.’s acquisition of BI-LO, LLC/Bruno’s announced in 12 December 2004;
13 • Albertson’s, Inc.’s acquisition of Shaw’s Supermarkets, Inc. announced in March 2004; and 14 • Willis Stein & Partners L.P.’s acquisition of Roundy’s Supermarkets, Inc. 15 announced in April 2002.
16 For each of the selected transactions, Goldman Sachs calculated and compared the
17 implied enterprise value of the target company based on the announced transaction price as a multiple of the target company’s EBITDA for the last twelve-month
18 period prior to the announcement of the transaction. While none of the companies that participated in the selected transactions are directly comparable to U.S. 19 Grocery, the companies that participated in the selected transactions are companies with operations that, for the purposes of analysis, may be considered similar to 20 certain of U.S. Grocery’s results and product profile.
21 The following table presents the results of this analysis: Selectad Tr.rn.ctious 22 Ettrprit Vilut as a Mulbpk of., Roulte Medan LTh1 EBITDA 3-9x-14-Ox 67x 23 LTM EB1TDA (Post OO7 LTM EBITDA (> S 1 Billion Enterprise Value) 64x
24 Based on its review of the foregoing calculations and applying its professional
25 judgment, Goldman Sachs applied enterprise value to LTM EBITDA multiples ranging from 6.0x to 7.0x to U.S. Grocery’s actual EBITDA for the last twelve-
26 months ended December 28, 2013 to derive a range of illustrative enterprise values of U.S. Grocery. Adjusting for a Blackhawk tax liability of $335 million, where the
27 estimated tax liability is calculated as the total tax liability due to the Blackhawk Distribution based on no tax basis step-up, assumptions provided by Safeway and 28 the trading price of shares of Blackhawk Class A common stock on February 28,
CLASS ACTION COMPLAINT - 44 - Case4:14-cv-02412-JSW Document1 Filed05/23/14 Page46 of 80
2014, this resulted in illustrative values per share of Company common stock for 1 U.S. Grocery, rounded to the nearest five cents, ranging from $28.05 to $33.90.
2 109. As with the omissions concerning Goldman Sachs’ Selected Companies A
3 these statements are rendered false and/or misleading by the omissions identified in par
4 108, supra as the individually observed EV multiples are integral to shareholders’ assessment
5 whether the range of multiples Goldman Sachs selected and applied to the Company
6 appropriate. Likewise, the benchmarking information omitted from the Proxy is material
7 shareholders’ ability to evaluate whether Goldman Sachs selected multiples that are appropri
8 given the growth and profitability profile of the Company. Without understanding whether su
9 an analysis was prepared in this case, and if so its results, it is difficult to understand w
10 Goldman Sachs selected the EV multiples it used in the analysis.
11 110. Goldman Sachs’ Present Value of Future Share Price Analysis. The descripti
12 of Goldman Sachs’ Present Value of Future Share Price Analysis on pages 80-81 of the Proxy
13 materially deficient because it fails to disclose:
14 (a) the projected net debt figures for each of Safeway Ex-Blackhawk and U.S.
15 Grocery for each of fiscal years 2013-2015;
16 (b) the projected diluted shares outstanding for the Company for each of fiscal
17 years 2013-2015;
18 (c) the assumed annual dividends for Safeway for each of fiscal years 2013-
19 2015;
20 (d) the specific inputs and assumptions used to derive the 9.1% cost of equity
21 figure used by Goldman Sachs in connection with its analysis for both Safeway Ex-Blackhawk
22 I and U.S. Grocery; and
23 (e) the rationale for limiting this analysis through 2015 despite having financial
24 projections through 2018 made available.
25 111. The omission of this information renders the following statements in the Proxy
26 false and/or materially misleading in contravention of the Exchange Act:
27 (a) From page 65 of the Proxy:
28
I CLASS ACTION COMPLAINT - 45 - Case4:14-cv-02412-JSW Document1 Filed05/23/14 Page47 of 80
On March 6, 2014, the Board held a special meeting after the close of the trading market. The Board again discussed the status of the preliminary non-binding indication of interest submitted by Company A. The Board concluded that 2 Company A was not likely to be in a position to submit a more complete proposal for a number of weeks and, considering the uncertainty surrounding a proposal 3 from Company A, determined to proceed with the Albertson’s LLC transaction. Goldman Sachs and Latham updated the Board on the final negotiations that had 4 occurred with Cerberus, Albertson’s LLC and Schulte Roth and that the terms of the merger agreement and all related documents had been finalized. Goldman Sachs 5 then delivered its oral opinion to the Board, which opinion was confirmed in
6 writing, to the effect that, as of March 6, 2014, and based upon and subject to the factors, procedures, assumptions, qualifications and limitations set forth therein, the
7 Per Share Merger Consideration (excluding the Additional Cash Merger Consideration) to be paid to the holders of shares of Company common stock
8 pursuant to the Merger Agreement was fair from a financial point of view to such holders. Greenhill then delivered its oral opinion to the Board, which opinion was 9 confirmed in writing, to the effect that, as of March 6, 2014, and based upon and subject to the factors, procedures, assumptions, qualifications and limitations set 10 forth therein, the sum of (i) the Per Share Merger Consideration (excluding the Additional Cash Merger Consideration) to be received by the holders of shares of 11 Company common stock pursuant to the Merger Agreement and (ii) the separate per share distribution to the holders of shares of Company common stock in the 12 Blackhawk Distribution was fair, from a financial point of view, to such holders. The Board then approved and adopted the Merger Agreement and, subject to the 13 terms of the Merger Agreement, recommended approval and adoption of the Merger Agreement by the Company’s stockholders and authorized the officers of 14 Safeway to sign the Merger Agreement.
15 (b) From page 72 of the Proxy:
16 Goldman Sachs rendered its opinion to the Board that, as of March 6, 2014, and
17 based upon and subject to the factors and assumptions set forth therein, the Per Share Merger Consideration (excluding the Additional Cash Merger Consideration)
18 to be paid to the holders of shares of Company common stock pursuant to the Merger Agreement was fair from a financial point of view to such holders.
19 The full text of the written opinion of Goldman Sachs, dated March 6, 2014, which 20 sets forth assumptions made, procedures followed, matters considered and limitations on the review undertaken in connection with the opinion, is attached to 21 this Proxy Statement as Annex D. Goldman Sachs provided its opinion for the information and assistance of the Board in connection with its consideration of the 22 transactions contemplated by the Merger Agreement. The Goldman Sachs opinion is not a recommendation as to how any holder of shares of Company common 23 stock should vote with respect to the transactions contemplated by the Merger Agreement, or any other matter. Goldman Sachs expressed no opinion as to the 24 value of the shares of Blackhawk Class A common stock or Class B common stock
25 or as to the fairness or any other aspect of the distribution of such shares in the Blackhawk Distribution.
26 (c) From pages 80-81 of the Proxy:
27 Illustrative Present Value of Future Share Price Analysis . Goldman Sachs 28 performed an illustrative analysis of the implied present value of the future price per share of Company common stock, which is designed to provide an indication of
CLASS ACTION COMPLAINT - 46 - Case4:14-cv-02412-JSW Document1 Filed05/23/14 Page48 of 80
the present value of a theoretical future value of a company’s equity as a function of such company’s estimated EBITDA and its assumed future enterprise value to EBITDA multiple, plus dividends. For this analysis, Goldman Sachs used certain 2 financial information from the Projections for (i) Safeway Ex-Blackhawk and (ii) U.S. Grocery. 3 In calculating the implied present value of future share price per share of Company 4 common stock for Safeway Ex-Blackhawk, Goldman Sachs first calculated the implied enterprise value of Safeway Ex-Blackhawk for each of the calendar years 5 ending 2013 to 2015 by multiplying the estimated one-year forward EBITDA of
6 Safeway Ex-Blackhawk by enterprise value to EBITDA multiples ranging from 4.7x to 5.8x. Goldman Sachs then subtracted the amount of total adjusted net debt
7 for Safeway Ex-Blackhawk per the Projections for each of the respective calendar years ending 2013 to 2015 in order to calculate the implied equity values for
8 calendar years ending 2013 to 2015, respectively. Goldman Sachs then divided these implied equity values by the respective calendar year end diluted outstanding 9 shares of Company common stock, per the Projections, to calculate implied equity values per share of Company common stock for calendar years 2013 to 2015, 10 respectively. Goldman Sachs then added the cumulative dividends per share of Company common stock payable to Safeway stockholders through the end of the 11 respective projected calendar year. Goldman Sachs then discounted these implied total values per share of Company common stock back to December 31, 2013 using 12 a discount rate of 9.1%, reflecting an estimate of the Safeway Ex-Blackhawk cost of equity. This analysis resulted in a range of implied present values, rounded to the 13 nearest five cents, of $24.10 to $36.65 per share of Company common stock.
14 In calculating the implied present value of future share price per share of Company common stock for U.S. Grocery, Goldman Sachs first calculated the implied 15 enterprise value of U.S. Grocery for each of the calendar years ending 2013 to 2015
16 by multiplying the estimated future EBITDA of U.S. Grocery by enterprise value to EBITDA multiples ranging from 4.7x to 5.8x. Goldman Sachs then subtracted the
17 amount of total adjusted net debt for U.S. Grocery per the Projections for each of the respective calendar years ending 2013 to 2015 in order to calculate the implied
18 equity values for calendar years ending 2013 to 2015, respectively. Goldman Sachs then divided these implied equity values by the respective calendar year end diluted 19 outstanding shares of Company common stock, per the Projections, to calculate implied future equity values per share of Company common stock for calendar 20 years 2013 to 2015, respectively. Goldman Sachs then added the cumulative dividends per share of Company common stock payable to Safeway stockholders 21 through the end of the respective projected calendar year. Goldman Sachs then discounted these implied total values per share of Company common stock back to 22 December 31, 2013 using a discount rate of 9.1%, reflecting an estimate of U.S. Grocery’s cost of equity. 23 This analysis resulted in a range of implied present values, rounded to the nearest 24 five cents, of $21.85 to $33.40 per share of Company common stock.
25 112. These statements in the Proxy are rendered false and/or misleading by
26 omissions identified in paragraph 111, supra because they fail to provide shareholders with
27 information required for them to fully understand the scope of the analysis and, consequently
28 evaluate whether the results of the analysis are an appropriate reflection of the Company’s
CLASS ACTION COMPLAINT - 47 - Case4:14-cv-02412-JSW Document1 Filed05/23/14 Page49 of 80
1 value. Where wide ranging debt figures, dividend payments, and changes in the cost of equity
2 have material impacts on the resulting implied value of the Company, it is important
3 shareholders be given the information necessary to determine whether these inputs are appropr
4 That is not the case here, however, as the Proxy fails to include such material information.
5 113. Goldman Sachs’ Discounted Cash Flow (“DCF”) Analysis. The description
6 I Goldman Sachs’ DCF Analysis on page 81 of the Proxy is materially deficient because it fails
7 I disclose:
8 (a) whether the “non-cash adjustments as taken from the statement of cash
9 I flows” used by Goldman Sachs in calculating U.S. Grocery’s estimated unlevered free cash
10 flows includes adjustments for stock-based compensation;
11 (b) the amount of the adjustment made for expected cash taxes stemming from
12 the Blackhawk Distribution for purposes of this analysis;
13 (c) the inputs and assumptions underlying Goldman Sachs’ use of a 7.5% to
14 8.5% discount rate range in connection with this analysis; and
15 (d) whether Goldman Sachs incorporated Safeway’s Net Operating Losses
16 I (“NOLs”) into its analysis.
17 114. The omission of this information renders the following statements in the
18 false and/or materially misleading in contravention of the Exchange Act:
19 (a) From page 65 of the Proxy:
20 On March 6, 2014, the Board held a special meeting after the close of the trading market. The Board again discussed the status of the preliminary non-binding 21 indication of interest submitted by Company A. The Board concluded that Company A was not likely to be in a position to submit a more complete proposal 22 for a number of weeks and, considering the uncertainty surrounding a proposal from Company A, determined to proceed with the Albertson’s LLC transaction. 23 Goldman Sachs and Latham updated the Board on the final negotiations that had occurred with Cerberus, Albertson’s LLC and Schulte Roth and that the terms of 24 the merger agreement and all related documents had been finalized. Goldman Sachs
25 then delivered its oral opinion to the Board, which opinion was confirmed in writing, to the effect that, as of March 6, 2014, and based upon and subject to the
26 factors, procedures, assumptions, qualifications and limitations set forth therein, the Per Share Merger Consideration (excluding the Additional Cash Merger
27 Consideration) to be paid to the holders of shares of Company common stock pursuant to the Merger Agreement was fair from a financial point of view to such 28 holders. Greenhill then delivered its oral opinion to the Board, which opinion was
CLASS ACTION COMPLAINT - 48 - Case4:14-cv-02412-JSW Document1 Filed05/23/14 Page50 of 80
confirmed in writing, to the effect that, as of March 6, 2014, and based upon and subject to the factors, procedures, assumptions, qualifications and limitations set forth therein, the sum of (i) the Per Share Merger Consideration (excluding the 2 Additional Cash Merger Consideration) to be received by the holders of shares of Company common stock pursuant to the Merger Agreement and (ii) the separate 3 per share distribution to the holders of shares of Company common stock in the Blackhawk Distribution was fair, from a financial point of view, to such holders. 4 The Board then approved and adopted the Merger Agreement and, subject to the terms of the Merger Agreement, recommended approval and adoption of the 5 Merger Agreement by the Company’s stockholders and authorized the officers of
6 Safeway to sign the Merger Agreement. (b) From page 72 of the Proxy: 7
8 Goldman Sachs rendered its opinion to the Board that, as of March 6, 2014, and based upon and subject to the factors and assumptions set forth therein, the Per 9 Share Merger Consideration (excluding the Additional Cash Merger Consideration) to be paid to the holders of shares of Company common stock pursuant to the 10 Merger Agreement was fair from a financial point of view to such holders.
11 The full text of the written opinion of Goldman Sachs, dated March 6, 2014, which sets forth assumptions made, procedures followed, matters considered and 12 limitations on the review undertaken in connection with the opinion, is attached to this Proxy Statement as Annex D. Goldman Sachs provided its opinion for the 13 information and assistance of the Board in connection with its consideration of the transactions contemplated by the Merger Agreement. The Goldman Sachs opinion 14 is not a recommendation as to how any holder of shares of Company common stock should vote with respect to the transactions contemplated by the Merger 15 Agreement, or any other matter. Goldman Sachs expressed no opinion as to the
16 value of the shares of Blackhawk Class A common stock or Class B common stock or as to the fairness or any other aspect of the distribution of such shares in the
17 Blackhawk Distribution.
18 (c) From page 81 of the Proxy:
19 Illustrative Discounted Cash Flow Analysis . Goldman Sachs performed an illustrative discounted cash flow analysis to determine the present value per share 20 of Company common stock of U.S. Grocery as of December 31, 2013. For purpose of this analysis, Goldman Sachs applied discount rates ranging from 7.5% to 8.5%, 21 reflecting estimates of U.S. Grocery’s weighted average cost of capital, to (a) U.S. Grocery’s estimated unlevered free cash flow for the years 2014 through 2018, and 22 (b) illustrative terminal values for U.S. Grocery in 2018. Goldman Sachs calculated U.S. Grocery’s estimated unlevered free cash flow as operating income, less 23 income taxes, less capital expenditures, plus or minus changes in net working capital and plus or minus any non-cash adjustments as taken from the statement of 24 cash flows included in the Projections. U.S. Grocery’s estimated unlevered free
25 cash flow for the year 2014 also included an adjustment for the expected amount of cash taxes resulting from the Blackhawk Distribution. This analysis resulted in U.S.
26 Grocery’s estimated unlevered free cash flow for the years ending 2014E through 2018E of $463 million, $770 million, $718 million, $759 million and $809 million,
27 respectively. The illustrative terminal values were derived by applying perpetuity growth rates ranging from (1.0%) to 1.0% (which implied exit LTM EBITDA 28 multiples ranging from 3.9x to 5.9x) to U.S. Grocery’s estimated unlevered free cash flow for 2018. Goldman Sachs then added the net present values of the
CLASS ACTION COMPLAINT - 49 - Case4:14-cv-02412-JSW Document1 Filed05/23/14 Page51 of 80
estimated unlevered free cash flow for the years 2014 through 2018 to the present 1 value of the illustrative terminal value and subtracted total adjusted net debt for Safeway to derive a range of present values of U.S. Grocery equity value. By 2 dividing this range of equity values by the total number of fully diluted outstanding shares of Company common stock, Goldman Sachs derived illustrative present 3 values per share of Company common stock of U.S. Grocery as of December 31, 2013, rounded to the nearest five cents, ranging from $26.90 to $38.40. 4 115. These statements in the Proxy are rendered false and/or misleading by 5 omissions identified in paragraph 114, supra for a variety of reasons. First, there are a number o 6 differing line items that can be included in the calculation of free cash flows and, depending on 7 what definition is used, can impact the valuation resulting from a DCF analysis. Second, whethe 8 the Company recognizes stock-based compensation in its estimate of after-tax free cash flows – 9 thus treating stock-based compensation as a non-cash expense as opposed to a cash expense – 10 could have a meaningful impact on the conclusions presented in Goldman Sachs’ DCF Analysis 11 Third, it is well established that (i) the calculation of a discount rate requires the application of a 12 number of objective inputs and assumptions; and (ii) the ultimate discount rate selected often ha 13 the single largest impact on a resulting DCF valuation. Accordingly, it is important that Safeway 14 shareholders be provided insight into the reasonableness of Goldman Sachs’ discretionary use o 15 the inputs and assumptions used to compute the selected discount rate range. 16 116. Goldman Sachs’ Leveraged Buyout Analysis. The description of Goldman Sachs 17 Leveraged Buyout Analysis on page 81 of the Proxy is materially deficient because it fails 18 disclose (i) whether stock-based compensation expenses were included in the non-ca 19 adjustments made to determine free cash flows for debt service for purposes of this analysis; a 20 (ii) the assumed cost of debt used by Goldman Sachs. 21 117. The omission of this information renders the following statements in the 22
false and/or materially misleading in contravention of the Exchange Act: 23 (a) From page 65 of the Proxy: 24 On March 6, 2014, the Board held a special meeting after the close of the trading 25 market. The Board again discussed the status of the preliminary non-binding
26 indication of interest submitted by Company A. The Board concluded that Company A was not likely to be in a position to submit a more complete proposal
27 for a number of weeks and, considering the uncertainty surrounding a proposal from Company A, determined to proceed with the Albertson’s LLC transaction.
28 Goldman Sachs and Latham updated the Board on the final negotiations that had occurred with Cerberus, Albertson’s LLC and Schulte Roth and that the terms of
CLASS ACTION COMPLAINT - 50 - Case4:14-cv-02412-JSW Document1 Filed05/23/14 Page52 of 80
the merger agreement and all related documents had been finalized. Goldman Sachs then delivered its oral opinion to the Board, which opinion was confirmed in writing, to the effect that, as of March 6, 2014, and based upon and subject to the 2 factors, procedures, assumptions, qualifications and limitations set forth therein, the Per Share Merger Consideration (excluding the Additional Cash Merger 3 Consideration) to be paid to the holders of shares of Company common stock pursuant to the Merger Agreement was fair from a financial point of view to such 4 holders. Greenhill then delivered its oral opinion to the Board, which opinion was confirmed in writing, to the effect that, as of March 6, 2014, and based upon and 5 subject to the factors, procedures, assumptions, qualifications and limitations set
6 forth therein, the sum of (i) the Per Share Merger Consideration (excluding the Additional Cash Merger Consideration) to be received by the holders of shares of
7 Company common stock pursuant to the Merger Agreement and (ii) the separate per share distribution to the holders of shares of Company common stock in the
8 Blackhawk Distribution was fair, from a financial point of view, to such holders. The Board then approved and adopted the Merger Agreement and, subject to the 9 terms of the Merger Agreement, recommended approval and adoption of the Merger Agreement by the Company’s stockholders and authorized the officers of 10 Safeway to sign the Merger Agreement.
11 (b) From page 72 of the Proxy:
12 Goldman Sachs rendered its opinion to the Board that, as of March 6, 2014, and based upon and subject to the factors and assumptions set forth therein, the Per 13 Share Merger Consideration (excluding the Additional Cash Merger Consideration) to be paid to the holders of shares of Company common stock pursuant to the 14 Merger Agreement was fair from a financial point of view to such holders.
15 The full text of the written opinion of Goldman Sachs, dated March 6, 2014, which
16 sets forth assumptions made, procedures followed, matters considered and limitations on the review undertaken in connection with the opinion, is attached to
17 this Proxy Statement as Annex D. Goldman Sachs provided its opinion for the information and assistance of the Board in connection with its consideration of the
18 transactions contemplated by the Merger Agreement. The Goldman Sachs opinion is not a recommendation as to how any holder of shares of Company common 19 stock should vote with respect to the transactions contemplated by the Merger Agreement, or any other matter. Goldman Sachs expressed no opinion as to the 20 value of the shares of Blackhawk Class A common stock or Class B common stock or as to the fairness or any other aspect of the distribution of such shares in the 21 Blackhawk Distribution.
22 (c) From page 81 of the Proxy:
23 Illustrative Leveraged Buyout Analysis . Goldman Sachs performed an illustrative leveraged buyout analysis to determine the range of prices per share of Company 24 common stock a financial buyer may be willing to pay to purchase U.S. Grocery. For the
25 purposes of this analysis, Goldman Sachs assumed an acquisition date of December 31, 2013, a target exit date of December 31, 2018, enterprise value to LTM EBITDA
26 multiples ranging from 5.0x to 6.0x at exit, adjusted leverage as a multiple of LTM EBITDA as of December 31, 2013 of 6.0x and an internal rate of return to a financial
27 buyer of 13% to 21%.
28 For purpose of this analysis, Goldman Sachs calculated U.S. Grocery’s free cash flow for debt service per the Projections as U.S. Grocery’s estimated net income, plus
CLASS ACTION COMPLAINT - 51 - Case4:14-cv-02412-JSW Document1 Filed05/23/14 Page53 of 80
depreciation and amortization, minus estimated increases in net working capital, minus 1 estimated capital expenditures, plus non-cash adjustments. Based upon U.S. Grocery’s estimated free cash flow for debt service as calculated and the assumptions described 2 above, Goldman Sachs calculated illustrative purchase prices per share of Company common stock ranging from $27.00 to $29.00. 3 118. These statements in the Proxy are rendered false and/or misleading by 4 omissions identified in paragraph 117, supra because the omitted information is integral to a 5 understanding of how this analysis was performed, whether it was performed accurately 6 honestly and, consequently, whether the analysis provides an accurate understanding of 7 Company’s value or was potentially manipulated to make the consideration being offered in 8 Proposed Transaction appear more fair than it actually is. This is particularly true here, where f 9 cash flows and the assumed cost of debt have a material impact on the resulting value derived 10 the Company as a result of such an analysis. 11 119. Goldman Sachs’ Work Generally. The Proxy further fails to disclose the followi 12 additional information pertaining to Goldman Sachs’ overall valuation of the Company: 13 whether Goldman Sachs conducted any analysis designed to evaluate the reasonableness of 14 $3.44 per share value Safeway attributed to the Assumed CVR Cash Proceeds, and Goldm 15 Sachs used in conducting its analyses; and (ii) what analysis Goldman Sachs used to determine 16 $0.71 per share value of the tax savings to Blackhawk associated with the step-up in tax b 17 resulting from the Blackhawk Distribution. 18 120. The omission of this information renders the following statements in the 19
false and/or materially misleading in contravention of the Exchange Act: 20 (a) From page 65 of the Proxy: 21 On March 6, 2014, the Board held a special meeting after the close of the trading 22 market. The Board again discussed the status of the preliminary non-binding indication of interest submitted by Company A. The Board concluded that 23 Company A was not likely to be in a position to submit a more complete proposal
24 for a number of weeks and, considering the uncertainty surrounding a proposal from Company A, determined to proceed with the Albertson’s LLC transaction.
25 Goldman Sachs and Latham updated the Board on the final negotiations that had occurred with Cerberus, Albertson’s LLC and Schulte Roth and that the terms of
26 the merger agreement and all related documents had been finalized. Goldman Sachs then delivered its oral opinion to the Board, which opinion was confirmed in 27 writing, to the effect that, as of March 6, 2014, and based upon and subject to the factors, procedures, assumptions, qualifications and limitations set forth therein, the 28 Per Share Merger Consideration (excluding the Additional Cash Merger
CLASS ACTION COMPLAINT - 52 - Case4:14-cv-02412-JSW Document1 Filed05/23/14 Page54 of 80
Consideration) to be paid to the holders of shares of Company common stock pursuant to the Merger Agreement was fair from a financial point of view to such holders. Greenhill then delivered its oral opinion to the Board, which opinion was 2 confirmed in writing, to the effect that, as of March 6, 2014, and based upon and subject to the factors, procedures, assumptions, qualifications and limitations set 3 forth therein, the sum of (i) the Per Share Merger Consideration (excluding the Additional Cash Merger Consideration) to be received by the holders of shares of 4 Company common stock pursuant to the Merger Agreement and (ii) the separate per share distribution to the holders of shares of Company common stock in the 5 Blackhawk Distribution was fair, from a financial point of view, to such holders.
6 The Board then approved and adopted the Merger Agreement and, subject to the terms of the Merger Agreement, recommended approval and adoption of the
7 Merger Agreement by the Company’s stockholders and authorized the officers of Safeway to sign the Merger Agreement.
8 (b) From page 72 of the Proxy:
9 Goldman Sachs rendered its opinion to the Board that, as of March 6, 2014, and 10 based upon and subject to the factors and assumptions set forth therein, the Per Share Merger Consideration (excluding the Additional Cash Merger Consideration) 11 to be paid to the holders of shares of Company common stock pursuant to the Merger Agreement was fair from a financial point of view to such holders. 12 The full text of the written opinion of Goldman Sachs, dated March 6, 2014, which 13 sets forth assumptions made, procedures followed, matters considered and limitations on the review undertaken in connection with the opinion, is attached to 14 this Proxy Statement as Annex D. Goldman Sachs provided its opinion for the information and assistance of the Board in connection with its consideration of the 15 transactions contemplated by the Merger Agreement. The Goldman Sachs opinion
16 is not a recommendation as to how any holder of shares of Company common stock should vote with respect to the transactions contemplated by the Merger
17 Agreement, or any other matter. Goldman Sachs expressed no opinion as to the value of the shares of Blackhawk Class A common stock or Class B common stock
18 or as to the fairness or any other aspect of the distribution of such shares in the Blackhawk Distribution.
19 121. Greenhill’s Selected Comparable Company Analysis. The description
20 Greenhill’s Selected Comparable Companies Analysis on pages 86-87 of the Proxy is
21 deficient because it fails to disclose whether a benchmarking analysis was conducted for
22 Company in relation to the comparable companies selected for use in the analysis by Greenhill.
23 122. The omission of this information renders the following statements in the
24
false and/or materially misleading in contravention of the Exchange Act:
25 (a) From page 65 of the Proxy:
26 On March 6, 2014, the Board held a special meeting after the close of the trading 27 market. The Board again discussed the status of the preliminary non-binding indication of interest submitted by Company A. The Board concluded that 28 Company A was not likely to be in a position to submit a more complete proposal
CLASS ACTION COMPLAINT - 53 - Case4:14-cv-02412-JSW Document1 Filed05/23/14 Page55 of 80
for a number of weeks and, considering the uncertainty surrounding a proposal from Company A, determined to proceed with the Albertson’s LLC transaction. Goldman Sachs and Latham updated the Board on the final negotiations that had 2 occurred with Cerberus, Albertson’s LLC and Schulte Roth and that the terms of the merger agreement and all related documents had been finalized. Goldman Sachs 3 then delivered its oral opinion to the Board, which opinion was confirmed in writing, to the effect that, as of March 6, 2014, and based upon and subject to the 4 factors, procedures, assumptions, qualifications and limitations set forth therein, the Per Share Merger Consideration (excluding the Additional Cash Merger 5 Consideration) to be paid to the holders of shares of Company common stock
6 pursuant to the Merger Agreement was fair from a financial point of view to such holders. Greenhill then delivered its oral opinion to the Board, which opinion was
7 confirmed in writing, to the effect that, as of March 6, 2014, and based upon and subject to the factors, procedures, assumptions, qualifications and limitations set
8 forth therein, the sum of (i) the Per Share Merger Consideration (excluding the Additional Cash Merger Consideration) to be received by the holders of shares of 9 Company common stock pursuant to the Merger Agreement and (ii) the separate per share distribution to the holders of shares of Company common stock in the 10 Blackhawk Distribution was fair, from a financial point of view, to such holders. The Board then approved and adopted the Merger Agreement and, subject to the 11 terms of the Merger Agreement, recommended approval and adoption of the Merger Agreement by the Company’s stockholders and authorized the officers of 12 Safeway to sign the Merger Agreement.
13 (b) From pages 83-84 of the Proxy:
14 The Board retained Greenhill to act as one of its financial advisors in connection with the Board’s consideration of the proposed terms of the potential Merger. On 15 March 6, 2014, at a meeting of the Board, Greenhill rendered to the Board an oral
16 opinion, subsequently confirmed by delivery of a written opinion as of March 6, 2014, to the effect that, as of the date of the opinion, and based upon and subject to
17 the limitations and assumptions set forth therein, the sum of (i) the Per Share Merger Consideration (excluding the Additional Cash Merger Consideration) to be
18 received by the holders of shares of Company common stock pursuant to the Merger Agreement and (ii) the separate per share distribution to the holders of 19 shares of Company common stock in the Blackhawk Distribution was fair, from a financial point of view, to such holders. 20 (c) From pages 86-87 of the Proxy: 21 Selected Comparable Company Analysis 22 Greenhill performed a comparable company analysis of the U.S. Grocery 23 operations of the Company, based on factors such as then-current market values, capital structure and operating statistics of other publicly traded companies 24 believed to be generally relevant, in order to derive trading multiples for these
25 companies, which could then be applied to operating statistics of the U.S. Grocery operations of the Company to derive an implied per share equity value range for the
26 U.S. Grocery operations of the Company.
27 In this analysis, Greenhill reviewed, to the extent publicly available, selected financial data for the publicly traded companies set forth below (together, the 28 “Greenhill peer group”).
CLASS ACTION COMPLAINT - 54 - Case4:14-cv-02412-JSW Document1 Filed05/23/14 Page56 of 80
1 1014 LBA Ig 3x KkeM1dNV Dlhz Group SA lx lx 2 SUPER.' LLr INC. Ox hm.1 M m1s ,: brd lx NA Spaa Jn: 1. 25 ft 3 Rrrndvs ba,: 5 S. lx
Idn Greenhill examined these companies because they are publicly traded companies in 4 the retail grocery business with comparable operations to those of the U.S. Grocery business of the Company. Greenhill chose to use estimated 2014 EBITDA and 5 earnings rather than actual 2013 results because current market valuations are
6 typically a reflection of expected future earnings rather than past performance.
7 Greenhill calculated and compared various financial multiples and ratios based on information it obtained from filings with the SEC, Capital IQ, FactSet, IBES, and
8 other publicly available information as of March 4, 2014. The multiples for each of the selected companies were based on closing share prices on March 4, 2014 and 9 the most recent filings with the SEC and Capital IQ, FactSet and IBES estimates. Greenhill derived ranges of multiples deemed most meaningful for its analysis, 10 based on its experience valuing companies in the retail and grocery sectors, and applied such ranges of multiples to the corresponding projections for the 11 Company’s U.S. Grocery operations included in the February Projections (as defined below). Based on these analyses, Greenhill applied ranges of 12.0x to 12 14.0x estimated 2014 earnings, to arrive at an implied equity value per share of Company common stock of $12.95 to $15.09 for the Company’s U.S. Grocery 13 operations, and applied ranges of 5.25x to 6.25x estimated 2014 EBITDA to arrive at an implied equity value per share of Company common stock of $26.50 to 14 $32.52 for the Company’s U.S. Grocery operations. Adding in the Blackhawk valuation and the Casa Ley CVR and PDC CVR valuations described below, the 15 ranges were $19.45 to $23.42 inclusive of those valuations based on estimated
16 2014 earnings and $32.99 to $40.86 inclusive of those valuations based on estimated 2014 EBITDA.
17 123. Again, a benchmarking analysis is essential when comparing entities for
18 purposes as the selection of multiples when conducting a market valuation analysis is onl
19 worthwhile if the multiples are chosen from entities with growth and profitability profiles simila
20 to the company being valued. Accordingly, the aforementioned statements are rendered false an
21 misleading by the omissions identified in paragraph 122, supra as they prevent shareholders from
22 truly evaluating the merits of the Greenhill Selected Comparable Companies Analysis as a whole.
23 124. Greenhill’s DCF Analysis. The description of Greenhill’s DCF Analysis on
24 87 of the Proxy is materially deficient because it fails to disclose:
25 (a) the EBITDA multiples that Greenhill applied to Safeway’s estimated 2018
26 EBITDA to determine the implied Company terminal value used in the analysis;
27 (b) whether changes in net working capital were considered as part of
28 Greenhill’s calculation of unlevered free cash flow for purposes of this analysis;
CLASS ACTION COMPLAINT - 55 - Case4:14-cv-02412-JSW Document1 Filed05/23/14 Page57 of 80
(c) the inputs and assumptions underlying Greenhill’s calculation of the 7.0% to
2 9.0% discount rate range used in this analysis; and
3 (d) whether Greenhill incorporated Safeway’s NOLs into its analysis at all.
4 125. The omission of this information renders the following statements in the
5 false and/or materially misleading in contravention of the Exchange Act:
6 (a) From page 65 of the Proxy:
7 On March 6, 2014, the Board held a special meeting after the close of the trading market. The Board again discussed the status of the preliminary non-binding 8 indication of interest submitted by Company A. The Board concluded that Company A was not likely to be in a position to submit a more complete proposal 9 for a number of weeks and, considering the uncertainty surrounding a proposal from Company A, determined to proceed with the Albertson’s LLC transaction. 10 Goldman Sachs and Latham updated the Board on the final negotiations that had occurred with Cerberus, Albertson’s LLC and Schulte Roth and that the terms of 11 the merger agreement and all related documents had been finalized. Goldman Sachs
12 then delivered its oral opinion to the Board, which opinion was confirmed in writing, to the effect that, as of March 6, 2014, and based upon and subject to the
13 factors, procedures, assumptions, qualifications and limitations set forth therein, the Per Share Merger Consideration (excluding the Additional Cash Merger
14 Consideration) to be paid to the holders of shares of Company common stock pursuant to the Merger Agreement was fair from a financial point of view to such 15 holders. Greenhill then delivered its oral opinion to the Board, which opinion was confirmed in writing, to the effect that, as of March 6, 2014, and based upon and 16 subject to the factors, procedures, assumptions, qualifications and limitations set forth therein, the sum of (i) the Per Share Merger Consideration (excluding the 17 Additional Cash Merger Consideration) to be received by the holders of shares of Company common stock pursuant to the Merger Agreement and (ii) the separate 18 per share distribution to the holders of shares of Company common stock in the Blackhawk Distribution was fair, from a financial point of view, to such holders. 19 The Board then approved and adopted the Merger Agreement and, subject to the terms of the Merger Agreement, recommended approval and adoption of the 20 Merger Agreement by the Company’s stockholders and authorized the officers of Safeway to sign the Merger Agreement. 21 (b) From pages 83-84 of the Proxy: 22
23 The Board retained Greenhill to act as one of its financial advisors in connection with the Board’s consideration of the proposed terms of the potential Merger. On
24 March 6, 2014, at a meeting of the Board, Greenhill rendered to the Board an oral opinion, subsequently confirmed by delivery of a written opinion as of March 6, 25 2014, to the effect that, as of the date of the opinion, and based upon and subject to the limitations and assumptions set forth therein, the sum of (i) the Per Share 26 Merger Consideration (excluding the Additional Cash Merger Consideration) to be received by the holders of shares of Company common stock pursuant to the 27 Merger Agreement and (ii) the separate per share distribution to the holders of shares of Company common stock in the Blackhawk Distribution was fair, from a 28 financial point of view, to such holders.
CLASS ACTION COMPLAINT - 56 - Case4:14-cv-02412-JSW Document1 Filed05/23/14 Page58 of 80
(c) From page 87 of the Proxy:
2 Discounted Cash Flow Analysis
3 Greenhill performed an illustrative discounted cash flow analysis of the Company’s U.S. Grocery operations on a standalone basis to determine indications of implied 4 equity values per share of Company common stock for the Company’s U.S. Grocery operations using financial forecasts and projections prepared by the 5 Company’s management and provided to Greenhill, for 2014 to 2018. Greenhill
6 calculated an implied present value per share of Company common stock for the Company’s U.S. Grocery operations by discounting to present value as of March 5,
7 2014 (a) estimates of the standalone, after-tax unlevered free cash flow for the period following March 5, 2014 through the remainder of 2014 and for each of the
8 years 2015 to 2018 calculated by Greenhill from the February Projections and (b) ranges of terminal values for the Company as of December 31, 2018 derived by 9 applying terminal EBITDA multiples to the estimate of 2018 EBITDA. Greenhill calculated standalone, after-tax unlevered free cash flow for such 2014 period and 10 for each of the years 2015 to 2018 starting with cash flow from U.S. Grocery operations, adjusted for stock based compensation, interest expense, incremental 11 rent expense and other non-cash adjustments, in each case adjusted for the effects of income taxes, less capital expenditures and other net cash flows from investing. 12 This analysis resulted in U.S. Grocery’s estimated unlevered free cash flow for such 2014 period of $675 million and for the years ending 2015 through 2018 of 13 $759 million, $707 million, $757 million and $811 million, respectively. The standalone, after-tax unlevered free cash flow for each of these periods and 14 terminal values were then discounted to calculate an indication of present values using discount rates ranging from 7% to 9% based on an analysis of the Greenhill 15 peer group’s weighted average cost of capital. Greenhill’s analysis also assumed
16 the Company’s net debt balance of $1,337 million. In addition, Greenhill’s analysis assumed a fully diluted share count of 236 million shares, based on common shares
17 outstanding of 232 million, plus the dilutive effects of restricted stock awards and stock options using the treasury stock method. This analysis resulted in an implied
18 per share equity value range for the Company’s U.S. Grocery operations of $31.97 to $40.14 per share of Company common stock. Adding in the Blackhawk 19 valuation and the Casa Ley CVR and PDC CVR valuations described below, the range was $38.46 to $48.48 per share of Company common stock. 20 126. As discussed previously, DCF Analyses are extremely sensitive to the inputs
21 particularly the discount rate. Thus, the omissions identified in paragraph 125, supra render
22 above statements in the Proxy false and/or misleading as shareholders are left unable to evalu
23 the appropriateness of the assumptions and inputs used by Greenhill to derive the free cash fl
24 figures for the Company as well as the discount rates that were applied to the free cash fl
25 calculations in deriving Safeway’s implied per share value. As DCF Analyses are one of the m
26 common and widely respected basis of valuing a going concern this information is material
27
28
CLASS ACTION COMPLAINT - 57 - Case4:14-cv-02412-JSW Document1 Filed05/23/14 Page59 of 80
shareholders determination of what weight, if any, to give to Greenhill’s fairness
2 when deciding whether to vote in favor of the Proposed Transaction.
3 127. Greenhill’s Precedent Transaction Analysis. The description of Greenhill’
4 I Precedent Transaction Analysis on pages 87-88 of the Proxy is materially deficient because it
5 to disclose:
6 (a) whether a benchmarking analysis comparing Safeway to the companies sold
7 in the selected precedent transactions selected for use by Greenhill in this analysis and, if so, the
8 scope of such analysis;
9 (b) the basis for Greenhill’s determination that the transactions involving Harris
10 Teeter, Nash Finch, and Winn-Dixie were the most applicable to the Proposed Transaction.
11 128. The omission of this information renders the following statements in the
12 false and/or materially misleading in contravention of the Exchange Act:
13 (a) From page 65 of the Proxy:
14 On March 6, 2014, the Board held a special meeting after the close of the trading market. The Board again discussed the status of the preliminary non-binding 15 indication of interest submitted by Company A. The Board concluded that Company A was not likely to be in a position to submit a more complete proposal 16 for a number of weeks and, considering the uncertainty surrounding a proposal from Company A, determined to proceed with the Albertson’s LLC transaction. 17 Goldman Sachs and Latham updated the Board on the final negotiations that had occurred with Cerberus, Albertson’s LLC and Schulte Roth and that the terms of 18 the merger agreement and all related documents had been finalized. Goldman Sachs
19 then delivered its oral opinion to the Board, which opinion was confirmed in writing, to the effect that, as of March 6, 2014, and based upon and subject to the
20 factors, procedures, assumptions, qualifications and limitations set forth therein, the Per Share Merger Consideration (excluding the Additional Cash Merger
21 Consideration) to be paid to the holders of shares of Company common stock pursuant to the Merger Agreement was fair from a financial point of view to such 22 holders. Greenhill then delivered its oral opinion to the Board, which opinion was confirmed in writing, to the effect that, as of March 6, 2014, and based upon and 23 subject to the factors, procedures, assumptions, qualifications and limitations set forth therein, the sum of (i) the Per Share Merger Consideration (excluding the 24 Additional Cash Merger Consideration) to be received by the holders of shares of Company common stock pursuant to the Merger Agreement and (ii) the separate 25 per share distribution to the holders of shares of Company common stock in the Blackhawk Distribution was fair, from a financial point of view, to such holders. 26 The Board then approved and adopted the Merger Agreement and, subject to the terms of the Merger Agreement, recommended approval and adoption of the 27 Merger Agreement by the Company’s stockholders and authorized the officers of Safeway to sign the Merger Agreement. 28
CLASS ACTION COMPLAINT - 58 - Case4:14-cv-02412-JSW Document1 Filed05/23/14 Page60 of 80
(b) From pages 83-84 of the Proxy:
2 The Board retained Greenhill to act as one of its financial advisors in connection with the Board’s consideration of the proposed terms of the potential Merger. On 3 March 6, 2014, at a meeting of the Board, Greenhill rendered to the Board an oral opinion, subsequently confirmed by delivery of a written opinion as of March 6, 4 2014, to the effect that, as of the date of the opinion, and based upon and subject to the limitations and assumptions set forth therein, the sum of (i) the Per Share 5 Merger Consideration (excluding the Additional Cash Merger Consideration) to be
6 received by the holders of shares of Company common stock pursuant to the Merger Agreement and (ii) the separate per share distribution to the holders of
7 shares of Company common stock in the Blackhawk Distribution was fair, from a financial point of view, to such holders.
8 (c) From pages 87-88 of the Proxy:
9 Precedent Transaction Analysis 10 Greenhill performed an analysis of selected business combinations consisting of 11 transactions that Greenhill, based on its experience with merger and acquisition transactions, deemed relevant. Greenhill’s analysis was based on publicly available 12 information regarding such transactions and the Capital IQ and FactSet databases. The selected transactions were not intended to be representative of the entire range 13 of possible transactions in the grocery industry. Greenhill chose the following five transactions, all of which had transaction values greater than $350 million and were 14 announced within the last three years, based on the professional judgment and experience of its investment bankers, taking into account the comparability, in 15 terms of size, markets and operations, of the acquired businesses to the U.S.
16 Grocery operations of the Company.
Announced Tra bpIJ 17 Dt T--Wt Asqumr rrmj TVfPJlITt k 1220.2013 Arden Group Inc TPG Capital, LP. 390 99x 18 072212013 Nash Finch Co Spartan Stomq, Inc 776 69x O79l2O13 Harris Teeter Supemiarkels, Ioc Kroger Co 2,658 6.7x 06.12/2013 Cinda Safeway Ltd- Sobeys Inc- 5,690 1O.lx 19 12/1912011 Wiiin-Dixie Star Inc. BI-LO LLC 642 43x Median (.9x 20
21 Greenhill reviewed the consideration paid in the selected transactions in terms of the implied enterprise value of such transactions as a multiple of the target’s 22 EBITDA for the last twelve month period that was most recently reported prior to the announcement of the applicable transaction. In conducting this review and 23 deriving a range of multiples deemed most relevant for its analysis, Greenhill evaluated the respective comparability of these acquired businesses to the U.S. 24 Grocery operations of the Company. Based on the comparability of the target to the
25 U.S. Grocery operations of the Company across various factors, as judged relevant by Greenhill, and based on its experience valuing companies in the retail and
26 grocery sectors, Greenhill deemed the acquisitions of (i) Harris Teeter Supermarkets, Inc. by Kroger Co., (ii) Nash Finch Co. by Spartan Stores, Inc. and
27 (iii) Winn-Dixie Stores, Inc. by BI-LO LLC to be the most applicable to the potential merger and therefore to the EV/EBITDA multiple used in Greenhill’s 28 analysis.
CLASS ACTION COMPLAINT - 59 - Case4:14-cv-02412-JSW Document1 Filed05/23/14 Page61 of 80
On this basis, Greenhill arrived at ranges of implied enterprise values for the U.S. 1 Grocery operations of the Company. Greenhill then subtracted net debt to arrive at the implied equity value of the Company’s U.S. Grocery operations. The results of 2 this analysis are summarized below. Low FI(gb 21:113 2013 3 FBITDA of US Grocery Op&ations SI 318im sixiiimi EV i E.BITDA Multiple 6.0x 7.0 4 Tot3l 1rnp1iei Bnterpiise Value of US Groceiy Ckpmnms $ 26 nun S,646 mm Less, Net Debt $I,337) mm mm Implied Equity Value of U.S. Grocery Qperalioiis $6,931 mm $3,309 mm 5 Fully Diluted Shares lctiidng 236 mm 236 mm Implied Value per Shire of US Gmcer' Operations $2939 $3. 14 6
7 Adding in the Blackhawk valuation and the Casa Ley CVR and PDC CVR
8 valuations described below, the range was $35.88 to $43.48 per share of Company common stock.
9 129. Given the importance of conducting a benchmarking analysis when performing any
10 market valuation such as this, the failure to disclose whether (and to what extent) any
11 benchmarking took place renders the aforementioned statements in the Proxy false and/or
12 misleading. Indeed, without understanding the growth and profitability profiles of the acquired
13 entities in the selected comparable transactions as compared to the same profiles for Safeway
14 Company shareholders are unable to assess the strength of Greenhill’s analysis and, consequently
15 whether it should be afforded considerable deference in their determination of whether the
16 Proposed Transaction should be approved.
17 130. Greenhill’s Leveraged Buyout Analysis. The description of Greenhill’s
18 Buyout Analysis on pages 88-89 of the Proxy is materially deficient because it fails to disclose
19 specific assumptions made by Greenhill with regard to transaction leverage, fees and expen
20 and financing terms. The omission of this information renders the following statements in
21 Proxy false and/or materially misleading in contravention of the Exchange Act:
22 (a) From page 65 of the Proxy:
23 On March 6, 2014, the Board held a special meeting after the close of the trading 24 market. The Board again discussed the status of the preliminary non-binding indication of interest submitted by Company A. The Board concluded that 25 Company A was not likely to be in a position to submit a more complete proposal for a number of weeks and, considering the uncertainty surrounding a proposal 26 from Company A, determined to proceed with the Albertson’s LLC transaction. Goldman Sachs and Latham updated the Board on the final negotiations that had 27 occurred with Cerberus, Albertson’s LLC and Schulte Roth and that the terms of the merger agreement and all related documents had been finalized. Goldman Sachs 28 then delivered its oral opinion to the Board, which opinion was confirmed in
I CLASS ACTION COMPLAINT - 60 - Case4:14-cv-02412-JSW Document1 Filed05/23/14 Page62 of 80
writing, to the effect that, as of March 6, 2014, and based upon and subject to the factors, procedures, assumptions, qualifications and limitations set forth therein, the Per Share Merger Consideration (excluding the Additional Cash Merger 2 Consideration) to be paid to the holders of shares of Company common stock pursuant to the Merger Agreement was fair from a financial point of view to such 3 holders. Greenhill then delivered its oral opinion to the Board, which opinion was confirmed in writing, to the effect that, as of March 6, 2014, and based upon and 4 subject to the factors, procedures, assumptions, qualifications and limitations set forth therein, the sum of (i) the Per Share Merger Consideration (excluding the 5 Additional Cash Merger Consideration) to be received by the holders of shares of
6 Company common stock pursuant to the Merger Agreement and (ii) the separate per share distribution to the holders of shares of Company common stock in the
7 Blackhawk Distribution was fair, from a financial point of view, to such holders. The Board then approved and adopted the Merger Agreement and, subject to the
8 terms of the Merger Agreement, recommended approval and adoption of the Merger Agreement by the Company’s stockholders and authorized the officers of 9 Safeway to sign the Merger Agreement.
10 (b) From pages 83-84 of the Proxy:
11 The Board retained Greenhill to act as one of its financial advisors in connection with the Board’s consideration of the proposed terms of the potential Merger. On 12 March 6, 2014, at a meeting of the Board, Greenhill rendered to the Board an oral opinion, subsequently confirmed by delivery of a written opinion as of March 6, 13 2014, to the effect that, as of the date of the opinion, and based upon and subject to the limitations and assumptions set forth therein, the sum of (i) the Per Share 14 Merger Consideration (excluding the Additional Cash Merger Consideration) to be received by the holders of shares of Company common stock pursuant to the 15 Merger Agreement and (ii) the separate per share distribution to the holders of
16 shares of Company common stock in the Blackhawk Distribution was fair, from a financial point of view, to such holders.
17 (c) From pages 88-89 of the Proxy:
18 Leveraged Buyout Analysis
19 Greenhill performed an illustrative leveraged buyout analysis to determine the 20 prices at which a financial buyer might effect a leveraged buyout of the Company using a capital structure similar to that proposed for the Merger. In performing this 21 analysis, Greenhill made several assumptions about the characteristics of such a transaction based on precedent transactions analyses, including such factors as 22 transaction leverage, fees and expenses, financing terms and exit EBITDA multiples. Starting with the February Projections, Greenhill calculated U.S. 23 Grocery’s free cash flow for debt service as U.S. Grocery’s estimated net income less additional tax-effected interest expense, plus depreciation and amortization, 24 minus estimated increases in net working capital, minus net cash from investment
25 activities, plus other non-cash adjustments. Greenhill assumed that a financial buyer would value the U.S. Grocery operations of the Company in 2018 at an
26 aggregate value range that represented exit multiples of estimated 2018 EBITDA ranging from 5.0x to 6.0x. Greenhill also assumed, based on its experience, that
27 financial buyers would likely target internal rates of return ranging from 15% to 25%. As a result of this analysis, Greenhill derived estimated implied values per 28 share of Company common stock that a financial buyer might be willing to pay to acquire the U.S. Grocery operations of the Company ranging from $24.89 to
CLASS ACTION COMPLAINT - 61 - Case4:14-cv-02412-JSW Document1 Filed05/23/14 Page63 of 80
$32.61. Adding in the Blackhawk valuation and the Casa Ley CVR and PDC CVR valuations described below, the range was $31.39 to $40.94.
2 131. These statements in the Proxy are rendered false and/or misleading by
3 aforementioned omissions because the omitted information is integral to a full understanding
4 how this analysis was performed, whether it was performed honestly and, consequently, whet
5 the analysis provides an accurate understanding of the Company’s value. This is particularly t
6 here, where the omitted assumptions underlying certain key inputs of the analysis (i.e. financi
7 terms and overall transaction leverage) are not disclosed.
8 132. Greenhill’s Blackhawk Valuation Analysis. The description of Greenhill’
9 Blackhawk Valuation Analysis on page 89 of the Proxy is materially deficient because it fails
10 disclose (i) the specific inputs and assumptions used to derive the 10.1% discount rate used 1
11 Greenhill in this analysis; and (ii) how the additional $0.76 per share resulting from the step-up
12 tax basis of Blackhawk shares came to be. The omission of this information renders the followin
13 statements in the Proxy false and/or materially misleading in contravention of the Exchange Act:
14 (a) From page 65 of the Proxy:
15 On March 6, 2014, the Board held a special meeting after the close of the trading market. The Board again discussed the status of the preliminary non-binding 16 indication of interest submitted by Company A. The Board concluded that Company A was not likely to be in a position to submit a more complete proposal 17 for a number of weeks and, considering the uncertainty surrounding a proposal from Company A, determined to proceed with the Albertson’s LLC transaction. 18 Goldman Sachs and Latham updated the Board on the final negotiations that had
19 occurred with Cerberus, Albertson’s LLC and Schulte Roth and that the terms of the merger agreement and all related documents had been finalized. Goldman Sachs
20 then delivered its oral opinion to the Board, which opinion was confirmed in writing, to the effect that, as of March 6, 2014, and based upon and subject to the
21 factors, procedures, assumptions, qualifications and limitations set forth therein, the Per Share Merger Consideration (excluding the Additional Cash Merger 22 Consideration) to be paid to the holders of shares of Company common stock pursuant to the Merger Agreement was fair from a financial point of view to such 23 holders. Greenhill then delivered its oral opinion to the Board, which opinion was confirmed in writing, to the effect that, as of March 6, 2014, and based upon and 24 subject to the factors, procedures, assumptions, qualifications and limitations set forth therein, the sum of (i) the Per Share Merger Consideration (excluding the 25 Additional Cash Merger Consideration) to be received by the holders of shares of Company common stock pursuant to the Merger Agreement and (ii) the separate 26 per share distribution to the holders of shares of Company common stock in the Blackhawk Distribution was fair, from a financial point of view, to such holders. 27 The Board then approved and adopted the Merger Agreement and, subject to the terms of the Merger Agreement, recommended approval and adoption of the 28
CLASS ACTION COMPLAINT - 62 - Case4:14-cv-02412-JSW Document1 Filed05/23/14 Page64 of 80
Merger Agreement by the Company’s stockholders and authorized the officers of Safeway to sign the Merger Agreement.
2 (b) From pages 83-84 of the Proxy:
3 The Board retained Greenhill to act as one of its financial advisors in connection with the Board’s consideration of the proposed terms of the potential Merger. On 4 March 6, 2014, at a meeting of the Board, Greenhill rendered to the Board an oral opinion, subsequently confirmed by delivery of a written opinion as of March 6, 5 2014, to the effect that, as of the date of the opinion, and based upon and subject to
6 the limitations and assumptions set forth therein, the sum of (i) the Per Share Merger Consideration (excluding the Additional Cash Merger Consideration) to be
7 received by the holders of shares of Company common stock pursuant to the Merger Agreement and (ii) the separate per share distribution to the holders of
8 shares of Company common stock in the Blackhawk Distribution was fair, from a financial point of view, to such holders.
9 (c) From page 89 of the Proxy:
10 Blackhawk Valuation 11 Greenhill performed an analysis to estimate the value to the Company’s 12 stockholders of the Company’s 72% ownership in Blackhawk. Greenhill reviewed the publicly available share price of Blackhawk Class A common stock as of March 13 4, 2014 and the number of shares outstanding to calculate the equity value of Blackhawk. Greenhill then used the percentage stake of Blackhawk owned by the 14 Company to calculate the value of the stake on a per share basis of Company common stock. Greenhill also considered a potential increase in value to the 15 holders of shares of Company common stock of the value of a step-up in tax basis
16 resulting from the Blackhawk Distribution to the holders of shares of Company common stock. The tax benefit was calculated using the then current Company tax
17 basis in the assets of Blackhawk of $95 million, as provided by the management of the Company, an assumed amortization period of fifteen years, an estimated
18 weighted average cost of capital of 10.1% for Blackhawk and a tax rate of 39%. As a result of this analysis, Greenhill calculated the estimated value of the Company’s 19 ownership of Blackhawk to be $3.94 per share of Company common stock and the value of the potential step up in basis to potentially result in up to $0.76 in 20 additional value per share of Company common stock for a potential total of $4.70 per share of Company common stock. 21 133. With changes in discount rates having such a significant impact on
22 valuation ranges, the inputs and assumptions underlying the calculation of such rates as used i 23 any valuation analysis comprise essential information to those individuals attempting t 24 understand how such an analysis was performed and, consequently, whether it was performe
25 accurately. Accordingly, the omissions from the Proxy as identified in paragraph 132, supr
26 render the preceding statements in the Proxy false and/or misleading.
27
28
CLASS ACTION COMPLAINT - 63 - Case4:14-cv-02412-JSW Document1 Filed05/23/14 Page65 of 80
1 134. Greenhill’s CVR Analysis. The description of Greenhill’s CVR Analysis on
2 89 of the Proxy is materially deficient because it fails to disclose:
3 (a) the implied terminal EBITDA multiple for Casa Ley Interest based on the
4 I perpetuity growth rate of 2.0% used in this analysis;
5 (b) the specific inputs and assumptions used to derive the 9.6% discount rate
6 I used in connection with the valuation of the Casa Ley Interest;
7 (c) the estimated stabilized net operating income of PDC used by Greenhill;
8 (d) the specific inputs and assumptions used to derive the 6.5% to 7.4%
9 I capitalization rate range used by Greenhill;
10 (e) the estimated impact of failing to sell the PDC assets before the sale
11 I deadline date contained in the CVR Agreement on Greenhill’s analysis;
12 (f) the separate per share values of the Casa Ley CVR based on (i) an
13 I immediate sale and (ii) a sale in four years;
14 (g) the specific per share value of the PDC CVR according to the Greenhill
15 analysis.
16 135. The omission of this information renders the following statements in the
17 false and/or materially misleading in contravention of the Exchange Act:
18 (a) From page 65 of the Proxy:
19 On March 6, 2014, the Board held a special meeting after the close of the trading market. The Board again discussed the status of the preliminary non-binding 20 indication of interest submitted by Company A. The Board concluded that Company A was not likely to be in a position to submit a more complete proposal 21 for a number of weeks and, considering the uncertainty surrounding a proposal from Company A, determined to proceed with the Albertson’s LLC transaction. 22 Goldman Sachs and Latham updated the Board on the final negotiations that had occurred with Cerberus, Albertson’s LLC and Schulte Roth and that the terms of 23 the merger agreement and all related documents had been finalized. Goldman Sachs
24 then delivered its oral opinion to the Board, which opinion was confirmed in writing, to the effect that, as of March 6, 2014, and based upon and subject to the
25 factors, procedures, assumptions, qualifications and limitations set forth therein, the Per Share Merger Consideration (excluding the Additional Cash Merger
26 Consideration) to be paid to the holders of shares of Company common stock pursuant to the Merger Agreement was fair from a financial point of view to such 27 holders. Greenhill then delivered its oral opinion to the Board, which opinion was confirmed in writing, to the effect that, as of March 6, 2014, and based upon and 28 subject to the factors, procedures, assumptions, qualifications and limitations set
I CLASS ACTION COMPLAINT - 64 - Case4:14-cv-02412-JSW Document1 Filed05/23/14 Page66 of 80
forth therein, the sum of (i) the Per Share Merger Consideration (excluding the Additional Cash Merger Consideration) to be received by the holders of shares of Company common stock pursuant to the Merger Agreement and (ii) the separate 2 per share distribution to the holders of shares of Company common stock in the Blackhawk Distribution was fair, from a financial point of view, to such holders. 3 The Board then approved and adopted the Merger Agreement and, subject to the terms of the Merger Agreement, recommended approval and adoption of the 4 Merger Agreement by the Company’s stockholders and authorized the officers of Safeway to sign the Merger Agreement. 5 (b) From pages 83-84 of the Proxy: 6
7 The Board retained Greenhill to act as one of its financial advisors in connection with the Board’s consideration of the proposed terms of the potential Merger. On
8 March 6, 2014, at a meeting of the Board, Greenhill rendered to the Board an oral opinion, subsequently confirmed by delivery of a written opinion as of March 6, 9 2014, to the effect that, as of the date of the opinion, and based upon and subject to the limitations and assumptions set forth therein, the sum of (i) the Per Share 10 Merger Consideration (excluding the Additional Cash Merger Consideration) to be received by the holders of shares of Company common stock pursuant to the 11 Merger Agreement and (ii) the separate per share distribution to the holders of shares of Company common stock in the Blackhawk Distribution was fair, from a 12 financial point of view, to such holders.
13 (c) From page 89 of the Proxy:
14 CVR Analysis
15 Greenhill performed an analysis to calculate the value of the Casa Ley CVR. The
16 valuation was calculated based on the estimated present value of the Company’s ownership stake in Casa Ley based on the possibilities of an immediate sale or a
17 sale of the ownership stake in four years, pursuant to the Casa Ley CVR Agreement. Greenhill calculated a range of implied present values of the Casa Ley
18 Interest by discounting to the present as of March 5, 2014 (a) the EBITDA from the Casa Ley Interest for each of the years from 2014 through 2018, calculated by 19 Greenhill from the February Projections and (b) terminal values for the Casa Ley Interest as of March 5, 2018, derived by applying a perpetuity growth rate of 2.0%, 20 which represents an assumed rate of growth for the steady-state operations of the business into perpetuity, to the estimates of the EBITDA of the Casa Ley Interest. 21 Greenhill’s analysis used the net present value of the EBITDA of Casa Ley, net of taxes at 39.25%, discounted at a discount rate of 9.6%, to determine the value 22 attributable to the Casa Ley Interest in the event of an immediate sale. In order to determine the present value of the Casa Ley CVR in the event of a sale in four 23 years of the Casa Ley Interest, Greenhill applied the same present value analysis, excluding the EBITDA of Casa Ley from March 4, 2014 to March 4, 2018, to 24 arrive at the present value on March 4, 2014 of the potential sale of Casa Ley on
25 March 4, 2018.
26 Greenhill performed an analysis to calculate the value of the PDC CVR. This valuation was calculated based upon the estimated stabilized net operating income
27 of PDC provided to Greenhill by the Company. Greenhill used the stabilized net operating income at PDC and, using multiples based on capitalization rates ranging 28 from 6.5% to 7.4%, produced a range of gross values for PDC. Adjustments to the gross values were made for estimated costs of $564.9 million to complete
CLASS ACTION COMPLAINT - 65 - Case4:14-cv-02412-JSW Document1 Filed05/23/14 Page67 of 80
construction projects and sales of the PDC assets and taxes at a rate of 39% (using 1 a tax basis for the Company of $435 million, as provided by the management of the Company). Greenhill also considered the possibility that the non-sale of PDC assets 2 before the sale deadline in the PDC CVR Agreement would result in a reduction of the value of the assets. 3 Greenhill’s analysis resulted in an estimated aggregate value of the Casa Ley CVR 4 and the PDC CVR to be between $2.56 and $3.64 per share of Company common stock. 5 136. These statements in the Proxy are rendered false and/or misleading by 6 omissions identified in paragraph 134, supra because each of the identified omissions 7 directly to the valuation figure derived as a result of the analysis and are thus essential 8 shareholders’ understanding of how the analysis was performed and whether it was perform 9 accurately. Consequently, shareholders need this information to determine what weight, if any, 10 give this analysis (and the Greenhill fairness opinion generally) in deciding whether to vote 11 favor of the Proposed Transaction. 12 Disclosure Deficiencies Concerning the Anticipated Future Performance of Safeway 13 137. According to pages 90-92 of the Proxy, Goldman Sachs and Greenhill were bo 14 provided with, and relied significantly upon, certain the financial forecasts prepared by Safew 15 management for fiscal years 2013-2018 in preparing their respective financial valuation analys 16 The Proxy does not, however, disclose certain aspects of these projections that are material 17 Company shareholders’ decision whether to approve the Proposed Transaction, including: 18 (a) With respect to the January Projections contained on page 93 of the Proxy, 19 the following line items for Safeway WholeCo, Safeway Ex-Blackhawk, and U.S. Grocery for 20 fiscal years 2013-2018: 21 (i) Revenue (excluding Safeway WholeCo); 22 (ii) Earnings Before Interest and Taxes (“EBIT”); 23 (iii) Dividends from the Casa Ley Interest (excluding U.S. Grocery); 24 (iv) Incremental rent expense; 25 (v) Taxes (or tax rate); 26 (vi) Capital expenditures; 27 (vii) Changes in net working capital; 28
I CLASS ACTION COMPLAINT - 66 -
Case4:14-cv-02412-JSW Document1 Filed05/23/14 Page68 of 80
1 (viii) Stock-based compensation expense; 2 (ix) Other non-cash adjustments.
3 (b) With respect to the February Projections contained on page 94 of the Proxy, 4 the following line items for Safeway WholeCo, Safeway Ex-Blackhawk, and U.S. Grocery for
5 fiscal years 2013-2018:
6 (i) EBIT;
7 (ii) Rent expense payable by Safeway to PDC;
8 (iii) Incremental rent expense;
9 (iv) Taxes (or tax rate);
10 (v) Capital expenditures; 11 (vi) Changes in net working capital; 12 (vii) Stock-based compensation expense; 13 (viii) Other non-cash adjustments.
14 (c) With respect to the Casa Ley February Projections, the following line items
15 for fiscal years 2013-2018 for Casa Ley:
16 (i) Revenue;
17 (ii) EBITDA; 18 (iii) EBIT;
19 (iv) Taxes (or tax rate);
20 (v) Capital expenditures; 21 (vi) Changes in net working capital; 22 (vii) Stock-based compensation expense.
23 (d) With respect to the financial forecasts generally: 24 (i) Whether Greenhill’s 2014 UFCF included any adjustment for th 25 expected cash taxes resulting from the Blackhawk Distribution; and
26 (ii) the line items excluded for purposes of normalizing the portion o 27 the January Projections relating to fiscal year 2013.
28
I CLASS ACTION COMPLAINT - 67 - Case4:14-cv-02412-JSW Document1 Filed05/23/14 Page69 of 80
138. The omission of this information renders the following statements in the
2 false and/or materially misleading in contravention of the Exchange Act:
3 (a) From pages 90-92 of the Proxy:
4 Prospective Financial Information
5 In connection with Albertson’s LLC’s consideration of a possible transaction with Safeway, in January 2014, the Company made available to Albertson’s LLC and 6 certain of their affiliates, as well as Goldman Sachs, in its capacity as financial advisor to the Board, certain prospective financial information concerning the 7 Company, including projected revenues, EBITDA, net income and free cash flow (the “January Projections”). In connection with the respective financial analyses 8 performed by Goldman Sachs and Greenhill, each in their capacities as financial advisors to the Board, in February 2014, the Company provided Goldman Sachs 9 and Greenhill certain updated prospective financial information concerning the
10 Company, including projected revenues, EBITDA, net income and free cash flow, which reflected certain changes from the January Projections based on actual 2013
11 results and the terms then contemplated with respect to a transaction with Albertson’s LLC, as well as adjustments to reflect certain non-operational changes 12 to the January Projections (the “February Projections” and, together with the January Projections, the “Projections”). 13 The Company’s management does not in the ordinary course of business prepare 14 prospective financial information for multiple upcoming fiscal years but made available the Projections for use by the Parent Entities to assist them with their due 15 diligence review of the Company and for use by Goldman Sachs and Greenhill in connection with the financial analyses performed by each of them in connection 16 with delivering their respective written financial opinions to the Board.
17 The Projections do not take into account any circumstances or events occurring after the date they were prepared, including the transactions contemplated by the 18 Merger Agreement, including the Merger. Further, the Projections do not take into
19 account the effect of any failure of the Merger to occur and should not be viewed as accurate or continuing in that context.
20 The Projections reflect numerous estimates and assumptions made by the Company
21 with respect to industry performance, general business, economic, regulatory, market and financial conditions and other future events, as well as matters specific 22 to the Company’s business, all of which are difficult to predict and many of which are beyond the Company’s control. The Projections reflect subjective judgment in 23 many respects and thus are susceptible to multiple interpretations and periodic revisions based on actual experience and business developments. As such, the 24 Projections constitute forward-looking information and are subject to risks and uncertainties that could cause actual results to differ materially from the results 25 forecasted in the Projections, including, but not limited to, the Company’s performance, industry performance, general business and economic conditions, 26 customer requirements, competition, adverse changes in applicable laws, regulations or rules, and the various risks set forth in the Company’s reports filed 27 with the SEC. There can be no assurance that the Projections will be realized or
28 that actual results will not be significantly higher or lower than forecast. The Projections cover multiple years and such information by its nature becomes less
CLASS ACTION COMPLAINT - 68 - Case4:14-cv-02412-JSW Document1 Filed05/23/14 Page70 of 80
reliable with each successive year. In addition, the Projections will be affected by the Company’s ability to achieve strategic goals, objectives and targets over the applicable periods. The assumptions upon which the Projections were based 2 necessarily involve judgments with respect to, among other things, future economic, competitive and regulatory conditions and financial market conditions, 3 all of which are difficult or impossible to predict accurately and many of which are beyond the Company’s control. The Projections reflect assumptions as to certain 4 business decisions that are subject to change. The Projections cannot, therefore, be considered a guarantee of future operating results, and this information should not 5 be relied on as such. The inclusion of the Projections should not be regarded as an
6 indication that the Company, the Parent Entities, the Board, any of their respective financial advisors or anyone who received this information then considered, or now
7 considers, them a reliable prediction of future events, and this information should not be relied upon as such. None of the Company, the Parent Entities, the Board or
8 any of their financial advisors or any of their affiliates intend to, and each of them disclaims any obligation to, update, revise or correct the Projections if they are or 9 become inaccurate.
10 The January Projections, which the Company made available to the Parent Entities and certain of their affiliates in January 2014, were estimated based on, among 11 other things, the Company’s then current estimates of the Company’s balance sheet, income statement and statement of cash flows for the fiscal year ended 12 December 28, 2013.
13 The February Projections, which the Company made available to the Financial Advisors in February 2014, were estimated based on, among other things, the 14 Company’s actual balance sheet, income statement and statement of cash flows for the fiscal year ended December 28, 2013, as reported by the Company in its Annual 15 Report on Form 10-K, filed with the SEC on February 26, 2014. In addition, the
16 February Projections were updated to reflect that certain terms of the transaction proposed by Albertsons had changed since the December Proposal, including the
17 introduction of the Casa Ley CVR and the PDC CVR. Additionally, the February Projections were, at Goldman Sachs’ request, modified to reflect certain non-
18 operational changes to the January Projections, including by removing interest income and equity incentive compensation expense from the calculation of 19 EBITDA. Finally, Goldman Sachs and Greenhill revised the February Projections, as directed by the Company, to adjust EBITDA for U.S. Grocery for the value of 20 the rent expense payable by the Company to PDC pursuant to the PDC Leases and to adjust net income for U.S. Grocery for the after-tax value of the rent expense 21 payable by the Company to PDC pursuant to the PDC Leases.
22 The summary of such information below is included solely to give stockholders access to the information that was made available and is not included in this Proxy 23 Statement in order to influence any stockholder to make any investment decision with respect to the Merger, including whether or not to seek appraisal rights with 24 respect to the shares of Company common stock.
25 The inclusion of the summary of the Projections herein should not be deemed an
26 admission or representation by the Company, the Parent Entities or the Board that they are viewed by the Company, the Parent Entities or the Board as material
27 information of the Company, and, in fact, the Company, the Parent Entities and the Board view the Projections as non-material because of the inherent risks and 28 uncertainties associated with such long range forecasts. The Projections should be evaluated, if at all, in conjunction with the historical financial statements and other
CLASS ACTION COMPLAINT - 69 - Case4:14-cv-02412-JSW Document1 Filed05/23/14 Page71 of 80
information regarding the Company contained in the Company’s public filings with 1 the SEC. In light of the foregoing factors and the uncertainties inherent in the Projections, stockholders are cautioned not to place undue, if any, reliance on the 2 Projections.
3 Neither the Company’s independent auditors, nor any other independent accountants, have compiled, examined, or performed any procedures with respect 4 to the prospective financial information contained herein, nor have they expressed any opinion or any other form of assurance on such information or its achievability, 5 and assume no responsibility for, and disclaim any association with, the
6 Projections.
7 Certain information set forth in the Projections are non-GAAP financial measures. These non-GAAP financial measures are not calculated in accordance with, or a
8 substitute for financial measures calculated in accordance with, GAAP and may be different from non-GAAP financial measures used by other companies. 9 Furthermore, there are limitations inherent in non-GAAP financial measures, in that they exclude a variety of charges and credits that are required to be included in 10 a GAAP presentation. Accordingly, these non-GAAP financial measures should be considered together with, and not as an alternative to, GAAP basis financial 11 measures.
12 (b) From pages 93-94 of the Proxy:
13 Summary of the Projections
14 January Projections
15 ritY.11) Sha€C(2> RU 0jC [)3 S 31 930 40 j9 S L2:33 411 12 EBHDA(3) S 1695(7) S 1110 S l79 1904 S 2010 S 2119 16 XtI 3311( 6) S 340 401 -L9 577 S 672 FCbFk?(4) S 4,S21(8) S 72 S 693 S S42 S S5 S 951 .ytr-BtkImvk() EnrIDA() S 1,%() S 1,593 S 1,662 5 1,752 S 1,943 S l,40 17 EBITDA(3) S 1,53R(7) S 1,53 S 1,600 5 1,65 S 1,716 S 1,913
18 (I) fl721I4Ebd !]2_ - ky! (2) PDcdBl ,,kddUdD kri(rth (3) EDigllv 1rdbvdjrthg rñ rddbk d,Id dg,lthgr ttt dSp; iñ qthnpñ r b1 rrth g€f -LIFO rntd dSf vE-HlUki,1Ud rnyth dd (4) F,ChIiiltd hflf!pti 1h0f mg thTh 19 (i) 3vE-BlkdUdUS € (6) US ddCLv (') . rom m o lud o e-im () IA1ud 1513.14 Nd I,, ,mc C±buc. 20 February Projections 21 (do mo)
S.f.y WhkC*(2) 22 S 96 3 34 S 3Al S 40402 S 11111 49 092 EBDA() S li° - S 1,653 5 1.767 S 1.B1 S 1990 S 2,100 Nh S ' S 344 S 519 S 09 S h Chflt4) 5 P. S 650 5 694 S 903 23 ERh*k.k(S) Rvrn S35,0') S 36,534 S 3710S 3396 S 39jW S 4L09 EThITDA( S U3') S 1.531 S 162 1724 S LE' S I S 11(7) S 304 S 111 S 43 S 546 63 24 S 35,7(7) S 36,534 S31,l0 S 3S35 S 3,1lO S 41_099 EBITDA( S l.394{) 5 1.4-43 5 L99 S Li9i SL62 S I 77 S 129) S 252 S 316 S 3S S 46 S 556 25 FChfl - 733 S '53 S 710 S '6S 5 D9
I V'2O1Ebd 5_ - kv fl' 21 dfl'2O15E 201Ebd 52-*kv G :C s;PDCdB1dthkdlUdD kF€,Fd 26 . 1 EBITILki dq upn dt dSvE-B1ikth q thdg fCLv A6n11vEBrrDAfUsG djrdfrhh fth rp.... I Fchrowi dhflowfrom opero exc1u& vqmo) 5) & v.CLvdPDCb
27 () US ddCIvPDC H1thD dSfVCdbU€ (R) A dr€dd€ thf,2O13A fl&4 N,1 1,— dS-L hp in fn Gthbñ (6) A,tdjtdf,th &th tppvbkbvrh Gpvt PDCp ±fftth PCL (9) Thom vdduo oacFccChflowforUS Grorvfor20l3.. 28
I CLASS ACTION COMPLAINT - 70 -
Case4:14-cv-02412-JSW Document1 Filed05/23/14 Page72 of 80
1 139. These statements in the Proxy are rendered false and/or misleading by the 2 omissions identified in paragraph 138, supra as this information is integral to shareholders’ 3 evaluation of the consideration being offered in the Proposed Transaction. Indeed, these financia 4 projections provide a sneak peek into Safeway’s expected future performance and, consequently
5 its value as a standalone entity. More importantly, however, this expected performance is more 6 reliable than similar forecasts prepared by third-party analysts and others as it comes from 7 corporate insiders with their hands on the pulse of the Company. Accordingly, it is no surprise 8 that financial projections are among the most highly sought after disclosures by shareholders in 9 the context of corporate transactions such as this. Additionally, these projections form the
10 backbone of the DCF Analyses prepared by Goldman Sachs and Greenhill. 11 140. Ultimately, Safeway shareholders have one of two choices: (i) accept the Proposed 12 Consideration; or (ii) seek appraisal for the true value of their Company shares. With 13 understanding the Company’s income/cash flow characteristics as a standalone entity (deri 14 through disclosure of reliable financial projections), Safeway shareholders are incapable 15 making an independent determination as to which of these two alternative options to pursue. 16 * * * * *
17 141. Defendants’ failure to provide Safeway shareholders with the foregoing materi
18 information constitutes a violation of sections 14(a) and 20(a) of the Exchange Act, and SEC Ru
19 14a-9 promulgated thereunder. The Individual Defendants were aware of their duty to disclo 20 this information and acted negligently (if not deliberately) in failing to include this information 21 the Proxy. Absent disclosure of this material information prior to the shareholder vote on
22 Proposed Transaction, Plaintiff and the other members of the Class will be unable to make a fu
23 informed decision whether to vote in favor of the Proposed Transaction and are thus 24 with irreparable harm warranting the injunctive relief sought herein.
25
26
27
28
I CLASS ACTION COMPLAINT - 71 - Case4:14-cv-02412-JSW Document1 Filed05/23/14 Page73 of 80
COUNT I 1 Violations of Section 14(a) of the Exchange Act and
2 SEC Rule 14a-9 Promulgated Thereunder (On Behalf of Plaintiff and the Proposed Class and 3 Against the Individual Members of the Board Defendants)
4 142. Plaintiff repeats and realleges each and every allegation contained above as if
5 I set forth herein.
6 143. The Company and its Board disseminated the false and materially misleadi
7 Proxy specified above, which failed to disclose material facts necessary in order to make the
8 statements made, in light of the circumstances under which they were made, not misleading.
9 144. The Proxy was prepared, reviewed, and/or disseminated by the Board and Safeway
10 It misrepresented and/or omitted material facts, including material information about the u
11 and conflicted sales process, the inadequate consideration offered in the Proposed Transaction,
12 I the actual intrinsic value of the Company.
13 145. The Company and its Board were at least negligent in filing the Proxy with
14 false and materially misleading statements included therein.
15 146. The omissions and false and misleading statements in the Proxy are material in
16 a reasonable shareholder would consider them important in deciding how to vote on the Propo
17 Transaction. In addition, a reasonable investor would view full and accurate disclosures
18 significantly altering the “total mix” of information made available in the Proxy and in
19 information reasonably available to shareholders.
20 147. By reason of the foregoing, Safeway and the members of its Board have violate
21 section 14(a) of the Exchange Act and SEC Rule 14a-9(a) promulgated thereunder.
22 148. Because of the false and misleading statements in the Proxy, Plaintiff is threatene
23 with irreparable harm, rendering money damages inadequate. Therefore, injunctive relief i
24 appropriate to ensure the Exchange Act violations are corrected.
25 ///
26 ///
27 ///
28 ///
I CLASS ACTION COMPLAINT - 72 - Case4:14-cv-02412-JSW Document1 Filed05/23/14 Page74 of 80
COUNT II 1 Violations of Section 20(a) of the Exchange Act
2 (On Behalf of Plaintiff and the Proposed Class and Against the Individual Members of the Board Defendants)
3 149. Plaintiff repeats and realleges each and every allegation contained above as if
4 I set forth herein.
5 150. The Individual Defendants acted as controlling persons of Safeway within
6 meaning of section 20(a) of the Exchange Act as alleged herein. By virtue of their positions a
7 officers and/or directors of Safeway, participation in and/or awareness of the Company’
8 operations, and/or intimate knowledge of the false and misleading statements contained in th
9 Proxy, they had the power to influence and control and did influence and control, directly o
10 indirectly, the decision-making of the Company, including the content and dissemination of th
11 various statements in the Proxy which Plaintiff contends are false and misleading.
12 151. Each of the Individual Defendants was provided with or had unlimited access t
13 copies of the Proxy and the other statements alleged by Plaintiff to be misleading prior to an
14 shortly after these statements were issued and had the ability to prevent the issuance of
15 I statements or cause the statements to be corrected.
16 152. In particular, each of the Individual Defendants had direct and supervi
17 I involvement in the day-to-day operations of the Company and, therefore, is presumed to have 18 the power to control or influence the particular transactions giving rise to the securities viol
19 as alleged herein, and exercised the same. The Proxy at issue contains the unan
20 recommendation of each of the Board members to approve the Proposed Transaction. They
21 thus, directly involved in the making of the Proxy.
22 153. In addition, as the Proxy sets forth at length, and as described herein, the
23 members were each involved in negotiating, reviewing, and approving the Proposed Transacti
24 The Proxy purports to describe the various issues and information that they reviewed
25 considered, descriptions of which had input from the directors.
26 154. As set forth above, the Individual Defendants had the ability to exercise con
27 over, and did control, a person or persons who have each violated section 14(a) of the Excha
28 Act and SEC Rule 14a-9 promulgated thereunder, by their acts and omissions as alleged herein.
I CLASS ACTION COMPLAINT - 73 - Case4:14-cv-02412-JSW Document1 Filed05/23/14 Page75 of 80
1 155. By virtue of these facts, the Board members have violated, and are liable to
2 Plaintiff and the other members of the Class pursuant to, section 20(a) of the Exchange Act.
3 COUNT III For Breach of Fiduciary Duties 4 (On Behalf of Plaintiff and the Proposed Class and
5 Against the Individual Members of the Board Defendants) 156. Plaintiff incorporates by reference and realleges each and every allegation 6 contained above as though fully set forth herein. 7 157. The Individual Defendants have violated the fiduciary duties of good faith, loyalty 8 and independence owed to the public shareholders of Safeway and have acted to put their 9 I interests ahead of the interests of Safeway shareholders. 10 158. By the acts, transactions, and course of conduct alleged herein, 11 individually and acting as a part of a common plan, are attempting to unfairly deprive plaintiff 12 other members of the Class of the true value inherent in and arising from Safeway. 13 159. The Individual Defendants have violated their fiduciary duties by agreeing to 14 Proposed Transaction without regard to the effect of the Proposed Transaction on Safe 15 I shareholders. 16 160. As demonstrated by the allegations above, the Individual Defendants failed 17 demonstrate the good faith required, and breached their duties of loyalty and independence ow 18 to the shareholders of Safeway because, among other reasons: 19 (a) they failed to take steps to maximize the value of Safeway to its pu 20 shareholders; 21 (b) they failed to properly value Safeway and its various assets and operations; and 22 (c) they ignored or did not protect against the numerous conflicts of interest resu 23 from the directors’ own interrelationships or connection with the Propo 24 Transaction. 25 161. Because the Individual Defendants dominate and control the business and 26 affairs of Safeway, and are in possession of or have access to private corporate 27 28 11 concerning Safeway’s assets, business, and future prospects, there exists an imbalance
I CLASS ACTION COMPLAINT - 74 - Case4:14-cv-02412-JSW Document1 Filed05/23/14 Page76 of 80
1 disparity of knowledge and economic power between them and the public shareholders 2 Safeway which makes it inherently unfair for them to pursue and recommend any propos
3 transaction wherein they will reap disproportionate benefits to the exclusion of maximizi
4 I shareholder value.
5 162. By reason of the foregoing acts, practices, and course of conduct, the Indiv
6 Defendants have failed to exercise ordinary care and diligence in the exercise of their fidu 7 obligations toward plaintiff and the other members of the Class.
8 163. The Individual Defendants are engaging in self-dealing, are not acting in good 9 toward plaintiff and the other members of the Class, and have breached and are breaching
10 fiduciary duties to the members of the Class. 11 164. As a result of the Individual Defendants’ unlawful actions, plaintiff and the 12 members of the Class will be irreparably harmed in that they will not receive their fair portion 13 the value of Safeway’s assets and operations. Unless the Proposed Transaction is enjoined by t
14 Court, the Individual Defendants will continue to breach their fiduciary duties owed to plaint 15 and the members of the Class, will not engage in arm’s-length negotiations on the Propos
16 Transaction terms, and may consummate the Proposed Transaction, all to the irreparable harm
17 I the members of the Class. 18 165. Plaintiff and the members of the Class have no adequate remedy at law.
19 through the exercise of this Court’s equitable powers can plaintiff and the Class be fully pr
20 from the immediate and irreparable injury which defendants’ actions threaten to inflict.
21 COUNT IV
22 Claim for Aiding and Abetting Breach of Fiduciary Duties
23 (On Behalf of Plaintiff and the Proposed Class and Against Safeway) 166. Plaintiff incorporates by reference and realleges each and every all 24 contained above as though fully set forth herein. 25 167. The Individual Defendants owed to plaintiff and the members of the Class 26 fiduciary duties as fully set out herein. 27
28
I CLASS ACTION COMPLAINT - 75 - Case4:14-cv-02412-JSW Document1 Filed05/23/14 Page77 of 80
1 168. By committing the acts alleged herein, the Individual Defendants breached th
2 fiduciary duties owed to plaintiff and the members of the Class.
3 169. Safeway colluded in or aided and abetted the Individual Defendants’ breaches
4 fiduciary duties, and was an active and knowing participant in the Individual Defendants’ brea
5 of fiduciary duties owed to plaintiff and the members of the Class.
6 170. Plaintiff and the members of the Class shall be irreparably injured as a direct
7 I proximate result of the aforementioned acts.
8 COUNT V Claim for Aiding and Abetting Breach of Fiduciary Duties 9 (On Behalf of Plaintiff and the Proposed Class and Against AB Acquisition,
10 Albertson’s Holdings, Albertson’s LLC, Merger Sub, and Cerberus Capital) 171. Plaintiff incorporates by reference and realleges each and every alle 11 contained above as though fully set forth herein. 12 172. The Individual Defendants owed to plaintiff and the members of the Class c 13 fiduciary duties as fully set out herein. 14 173. By committing the acts alleged herein, the Individual Defendants breached 15 fiduciary duties owed to plaintiff and the members of the Class. 16 174. AB Acquisition, Albertson’s Holdings, Albertson’s LLC, Merger Sub, 17 Cerberus Capital colluded in or aided and abetted the Individual Defendants’ breach of fidu 18 duties, and were active and knowing participants in the Individual Defendants’ breach of fiduciar 19 duties owed to plaintiff and the members of the Class. 20 175. AB Acquisition, Albertson’s Holdings, Albertson’s LLC, Merger Sub, an 21 Cerberus Capital participated in the breach of the fiduciary duties by the Individual Defendants fo 22 the purpose of advancing their own interests. AB Acquisition, Albertson’s Holdings, Albertson’ 23 LLC, Merger Sub, and Cerberus Capital obtained and will obtain both direct and indirect benefit 24 from colluding in or aiding and abetting the Individual Defendant’s breaches. AB Acquisit 25 Albertson’s Holdings, Albertson’s LLC, Merger Sub, and Cerberus Capital will benefit from 26 acquisition of the Company at an inadequate and unfair consideration if the Proposed Transac 27 is consummated. 28 I
I CLASS ACTION COMPLAINT - 76 -
Case4:14-cv-02412-JSW Document1 Filed05/23/14 Page78 of 80
1 176. Plaintiff and the members of the Class shall be irreparably injured as a direct 2 proximate result of the aforementioned acts.
3 PRAYER FOR RELIEF 4 WHEREFORE, Plaintiff demands injunctive relief, in its favor and in favor of the
5 and against Defendants as follows:
6 A. Declaring that this action is properly maintainable as a class action;
7 B. Declaring that the defendants, jointly and severally, violated Sections 14(a) and/
8 Section 20(a) of the Exchange Act, as well as Rule 14a-9 promulgated thereunder;
9 C. Declaring and decreeing that the Merger Agreement was agreed to in breach of t
10 duties and obligations of the Individual Defendants and is therefore unlawful and unenforceable; 11 D. Rescinding, to the extent already implemented, the Merger Agreement; 12 E. Enjoining defendants, their agents, counsel, employees, and all persons acting 13 concert with them from consummating the Proposed Transaction, unless and until the Compan
14 (i) adopts and implements a procedure or process reasonably designed to enter into a merg 15 agreement providing the best possible value for the Class; and/or (ii) provides Safew 16 shareholders with all material information concerning the Proposed Transaction as required by t
17 Exchange Act; 18 F. Directing defendants, jointly and severally, to account to plaintiff and the Class f
19 all damages suffered and to be suffered by them as a result of the wrongs complained of herein, 20 the merger is consummated;
21 G. Imposition of a constructive trust, in favor of plaintiff and the other members of 22 Class, upon any benefits improperly received by defendants as a result of their wrongful conduct; 23 H. Awarding plaintiff the costs and disbursements of this action, including reasonable 24 attorneys’ and experts’ fees; and
25 I. Granting such other and further equitable relief as this Court may deem just and
26 I proper.
27
28
I CLASS ACTION COMPLAINT - 77 - Case4:14-cv-02412-JSW Document1 Filed05/23/14 Page79 of 80
REQUEST FOR JURY TRIAL 1 Plaintiff hereby demands a trial by jury on all counts so triable pursuant to Federal Rule
2 Civil Procedure 38.
3 Dated: May 22, 2014 WOLF HALDENSTEIN ADLER
4 FREEMAN & HERZ LLP
5 By: /s/ Betsy C. Manifold BETSY C. MANIFOLD 6
7 FRANCIS M. GREGOREK [email protected] 8 BETSY C. MANIFOLD
9 [email protected] RACHELE R. RICKERT
10 [email protected] MARISA C. LIVESAY 11 [email protected] 750 B Street, Suite 2770 12 San Diego, CA 92101 Telephone: 619/239-4599 13 Facsimile: 619/234-4599
14 Attorneys for Plaintiff
15
16
17
18
19
20
21
22
23
24
25
26 I SAFEWAY:20832.COMPLAINT
27
28
I CLASS ACTION COMPLAINT - 78 - Case4:14-cv-02412-JSW Document1 Filed05/23/14 Page80 of 80
PLAINTIFF’S CERTIFICATION I, Barbara Templeton, hereby declare under penalty of perjury, as to the claims asserted under the federal securities laws, that: I have reviewed the complaint and authorized the commencement of an action on Plaintiffs’ behalf. 2. I did not purchase the security that is the subject of this action at the direction of plaintiff's counsel or in order to participate in this private action.
3. I am willing to serve as a representative party on behalf of the class, including providing testimony at deposition and trial, if necessary. 4. At all times relevant to this action, I held more than 4,600 shares of Safeway’s securities and continued to hold these shares through the Class Period set forth in the Complaint.
5. During the three years prior to the date of this Certificate, I have not sought to serve or served as a representative party for a class in an action filed under the federal securities laws.
6. I will not accept any payment for serving as a representative party on behalf of the class beyond the my pro rata share of any recovery, except such reasonable costs and expenses (including lost wages) directly relating to the representation of the Class as ordered or approved by
the court. I declare under penalty of perjury that the foregoing is true and correct. Executed this
23rd day of May, 2014 at San Leandro, California.
______BARBARA TEMPLETON
SAFEWAY:20859v2