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Summary

  • As anticipated in my previous article, shareholders approved merger agreement Friday.
  • Deal on track to close in 4th quarter.
  • There is still more than 14% upside by selling a certain put option. 48% gain annualized.

On Friday, July 25th, Safeway (NYSE:SWY) shareholders overwhelmingly approved their proposed merger with Albertsons, part of a group led by private-equity firm Cerberus Capital Management LP. The company said about 96% of the shares that were voted, voted in favor of the deal. The shareholder approval satisfies one of the conditions of the merger which I wrote about here.

According to the Safeway investor relations department closing is expected in the 4th quarter. The deal though still needs to be signed off by the Federal Trade Commission, which likely will require Safeway and/or Albertsons, to divest some stores for competitive reasons. Safeway says the companies are continuing to work cooperatively with the FTC.

The deal consideration is for $32.50 cash plus a portion of proceeds from non-core asset sales. Those assets, according to the company, have an estimated value of between $3.45 and $3.85 per share. That would mean there is only between 58 cents and 98 cents left on the table for investors assuming the deal closes, which I continue to believe is very likely. By selling the January 2016 32 put option for 70 cents, though, the return is a handsome 14.5% or 48.1% annualized (assuming a mid 4th quarter closing).

MONTH/YEAR/STRIKEBID/ ASK% GAINANNUAL % GAIN 
January 2016 32 put.70-114.5%48.1% 

*See original article for formula detailing short option percentage gains.

Source: Update: Safeway Shareholder Vote-Approval

Additional disclosure: I am long SWY through January 2016 puts that I am short.