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.