francis m. gregorek (144785) - stanford...

Case4:14-cv-02412-JSW Document1 Filed05/23/14 Page1 of 80

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FRANCIS M. GREGOREK (144785) [email protected] BETSY C. MANIFOLD (182450) [email protected] RACHELE R. RICKERT (190634) [email protected] MARISA C. LIVESAY (223247) [email protected] WOLF HALDENSTEIN ADLER

FREEMAN & HERZ LLP 750 B Street, Suite 2770 San Diego, CA 92101 Telephone: 619/239-4599 Facsimile: 619/234-4599

BARBARA TEMPLETON, on Behalf of Herself and All Others Similarly Situated,

Plaintiff, v.

SAFEWAY INC.; ROBERT L. EDWARDS; T. GARY ROGERS; WILLIAM Y. TAUSCHER; MOHAN GYANI; ARUN SARIN; JANET E. GROVE; FRANK C. HERRINGER; KENNETH W. ODER; GEORGE J. MORROW; AB ACQUISITION LLC; ALBERTSON’S HOLDINGS LLC; ALBERTSON’S LLC; SATURN ACQUISITION MERGER SUB, INC.; and CERBERUS CAPITAL MANAGEMENT L.P.,

Defendants

Case No.

CLASS ACTION COMPLAINT FOR VIOLATIONS OF THE SECURITIES EXCHANGE ACT, SELF-DEALING, AND FOR BREACH OF FIDUCIARY DUTIES

Attorneys for Plaintiff

UNITED STATES DISTRICT COURT NORTHERN DISTRICT OF CALIFORNIA

OAKLAND DIVISION

CLASS ACTION COMPLAINT


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SUMMARY OF THE ACTION

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1. Plaintiff Barbara Templeton (“Plaintiff”) brings this shareholder class action

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for herself, and on behalf of all similarly situated holders of Safeway Inc. (“Safeway” or the

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“Company”) common stock against Safeway, the members of the Company’s Board of Directors

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(the “Board” or the “Individual Defendants”), AB Acquisition LLC (“AB Acquisition”),

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Albertson’s Holdings LLC (“Albertson’s Holdings”), Albertson’s LLC (“Albertson’s LLC”),

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Saturn Acquisition Merger Sub, Inc. (“Merger Sub”), and Cerberus Capital Management L.P.

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(“Cerberus Capital” and/or, collectively, with AB Acquisition, Albertson’s Holdings, Albertson’s

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LLC, and Merger Sub, “Albertsons”). This action seeks to enjoin defendants from further

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breaching their fiduciary duties in their pursuit of a sale of Safeway at an unfair price through an

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unfair and self-serving process to Albertsons (the “Proposed Transaction”).

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2. Pursuant to the parties’ Agreement and Plan of Merger dated March 6, 2014

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“Merger Agreement”), Albertsons intends to acquire all of the issued and outstanding shares

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Safeway common stock in exchange for $32.50 in cash and contingent value rights (“CVRs

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related to the disposition of certain of the Company’s “non-core assets,” which have an estimat

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value between $3.45 and $3.85 per share. Further, Safeway intends to distribute the 37.8 milli

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shares it owns in Blackhawk Network Holdings, Inc. (“Blackhawk”) to shareholders in mid-Ap

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2014 (the “Blackhawk distribution”). Based on the closing price of Blackhawk’s common stock

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$25.06 per share on March 5, 2014, the Blackhawk distribution has a current value of $3.95 p

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Company share. All together, the $32.50 cash consideration, the CVRs, and the Blackhaw

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distribution will result in a consideration for Safeway shareholders worth approximately $40 p

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share (the “Proposed Consideration”).

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3. Safeway is one of the largest food and drug retailers in the United States with 1,33

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stores in twenty states and the District of Columbia and sales totaling approximately $36.1 bi

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in 2013. The Company has thirteen distribution centers, twenty manufacturing plants,

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employs approximately 138,000 employees. In addition, Safeway also has considerable “non

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assets,” including (i) its majority stake in Blackhawk, a leading prepaid payment net

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supporting the management and distribution of consumer gift cards; (ii) a 49% ownership of

I CLASS ACTION COMPLAINT - 1 -


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Ley, S.A. de C.V. (“Casa Ley”), the fifth-largest food and general merchandise retailer in Mex

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based on sales; and (iii) a portfolio of real estate development assets held through its subsid

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Property Development Centers, LLC (“PDC”). Between its core business and these non-c

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assets, the Company has delivered solid and improving financial results in recent years. In f

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for eight of the past ten quarters, Safeway exceeded consensus analyst estimates for adjus

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earnings per share (“EPS”) and on February 19, 2014, the Company reported sales and o

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revenue was $11.3 billion for the fourth quarter of 2013 compared to $11.2 billion for the fo

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quarter of 2012. Gross profit margin also increased year-over-year, reaching 26.52% of sales

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the fourth quarter of 2013 and 26.27% for the full year 2013. The Proposed Transaction threat

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to bring an end to this financial progress.

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4. Several equity analysts had price targets for Safeway well above the Proposed

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Consideration of $40 per share prior to the announcement of the Proposed Transaction, and

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numerous others have been sharply critical of the deal since it was announced. Analyst Karen

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Short (“Short”) of Deutsche Bank Securities Inc. described the Proposed Transaction as “a great

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deal” for Albertsons and as undervaluing Safeway. In the four and a half months between the

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first rumors of a deal with Albertsons and Safeway and the deal announcement, various analysts

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valued a potential transaction between the two companies. Collectively, these analysts believe

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that a deal between Albertsons and Safeway would result in a consideration for Safeway

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shareholders between $43 and $56 per share. The Proposed Consideration, however, falls well

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below this range.

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5. Moreover, according to Bloomberg data, the Proposed Transaction is the cheapest

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deal in the food retail industry in almost a decade and, based on comparable historical

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transactions, a fair price for Safeway’s considerable assets should fall in the range of $48 to

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$67 per share . The Proposed Consideration also falls significantly below this range.

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6. In order to lock in the Proposed Transaction at the unfair Proposed

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I the Board breached their fiduciary duty to the Company shareholders by entering into

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I preclusive and onerous deal protection devices, as set forth in the Merger Agreement.

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provisions, which further diminish the chances of obtaining maximum value for the Company’



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shareholders by collectively precluding any competing offers for the Company, include: (i)

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impractically short “go-shop” period lasting just twenty-one days; (ii) a three business-

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matching rights period during which Albertsons can match any superior proposal received by

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Company; and (iii) a termination fee of $150 million if the Company had accepted a compet

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bid during the “go-shop” period and a termination fee of $250 million now that the “go-sh

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period has expired.

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7. In order to further discourage any competing bidder interested in acqui

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Safeway with its Blackhawk assets, Safeway distributed its equity stake in Blackhawk on A

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14, 2014 to its shareholders, thereby precluding any further interest by such bidders in acqui

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Safeway.

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8. The Company has also left in place its shareholder Rights Agreement, other

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known as a “poison pill,” adopted in September 2013 in order to prevent competing bidders f

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making acquisition proposals directly to the Safeway shareholders and it has adopted an Execu

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Severance Plan (the “Severance Plan”) that will substantially increase the acquisition costs for

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potential competing bidder.

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9. The Proposed Transaction is also the product of a deeply flawed and conflicted sal

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process. The Board retained Goldman Sachs & Co. (“Goldman Sachs”) as its financial adviso

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despite Goldman Sachs’s substantial ties to Albertsons’ principal investor, Cerberus Capital. As

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result, the Board and Goldman Sachs conducted a sales process that was designed to confir

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Albertsons as the winning bidder rather than maximize value for Safeway’s shareholders through

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I competition process.

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10. Furthermore, while the Company’s shareholders will lose control of Safeway at a

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unfair price, the Company’s fiduciaries will receive immediate benefits from the closing of th

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Proposed Transaction, including lucrative and prestigious positions at the post-merger compan

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and/or sizeable severance packages. Additionally, Safeway’s officers and directors will receiv

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millions of dollars in special payments for currently unvested stock options, performance shares

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and restricted stock units (“RSUs”), all of which shall, upon the closing of the Propose

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Transaction, become fully vested and exercisable. Finally, the Individual Defendants affiliate



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with Safeway’s majority-owned subsidiary Blackhawk will receive unique benefits in connec

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with the planned distribution of the Company’s equity stake in Blackhawk. These benefits, n

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of which is shared equally by Safeway’s public shareholders, were key factors in the Indivi

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Defendants’ decision to pursue the Proposed Transaction.

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11. Not only did the Individual Defendants breach their fiduciary duties by agreeing

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the sale of the Company at an unfairly low price as the result of a flawed and conflicted proce

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the Individual Defendants also violated Section 14(a) and Section 20(a) of the Securities Exchan

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Act of 1934 (the Exchange Act) and Rule 14a-9 promulgated thereunder, by misrepresenting

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omitting several material facts in the Company’s Proxy Statement Pursuant to Section 14(a) of

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Securities Exchange Act of 1934, filed on April 17, 2014 (the “Proxy”).

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12. The Proxy omits several material facts, including, inter alia (i) the estimated va

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of synergies anticipated as a result of the Proposed Transaction; (ii) the current estimated value

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the Company’s real estate holdings; (iii) what strategic initiatives pertaining to Safeway’s differ

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geographic initiatives were discussed by the Individual Defendants in the process of negotiati

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the Proposed Transaction; and (iv) the fees paid to Goldman Sachs in connection with its role

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financial advisor to Safeway.

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13. The Proxy also is also materially deficient because it fails to disclose vari

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material facts regarding Goldman Sachs’ and Greenhill’s valuation analysis of Safeway

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Blackhawk, as well as omitting material facts regarding both financial advisors’ analy

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concerning the anticipated future performance of Safeway.

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14. In pursuing the unlawful plan to sell the Company via an unfair process and at

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inadequate price, each of the defendants has violated applicable law by directly breaching and

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aiding and abetting the other defendants’ breaches of their fiduciary duties of loyalty and due ca

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among others, as well as a violation of applicable legal standards governing the Individ

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Defendants. The Individual Defendants also violated Sections 14(a) and 20(a) of the Exchan

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Act by misrepresenting and/or omitting certain material facts in the Proxy. This action seeks

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enjoin the Individual Defendants from further breaching their duties in connection with t

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Proposed Transaction. Plaintiff seeks: (i) a declaration that the defendants, jointly and severally



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violated Sections 14(a) and/or Section 20(a) of the Exchange Act, as well as Rule 14a

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promulgated thereunder; (ii) injunctive relief preventing consummation of the Propos

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Transaction, unless and until the Company adopts and implements a procedure or process

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obtain a transaction that provides the best possible terms for shareholders, and defendants disclo

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all material information concerning the Proposed Transaction to Safeway shareholders; (iii)

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directive to the Individual Defendants to comply with their duties under applicable law

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I obtaining a transaction which is in the best interests of Safeway shareholders; and (iv) rescissi

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I of, to the extent already implemented, the Merger Agreement or any of the terms thereof.

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JURISDICTION, VENUE, AND INTRADISTRICT ASSIGNMENT

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15. This Court has jurisdiction over all causes of action asserted herein pursuant

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Section 27 of the Exchange Act for violations of Sections 14(a) and 20(a) of the Exchange Act a

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SEC Rule 14a-9 promulgated thereunder. This Court also has jurisdiction over the subject mat

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of this action pursuant to 28 U.S.C. §1332(a)(2) because plaintiff and defendants are citizens

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different states and the amount in controversy exceeds $75,000, exclusive of interest and cos

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This Court has supplemental jurisdiction pursuant to 28 U.S.C. §1367(a) over all other claims t

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are so related to the claims within its original jurisdiction that they form part of the same case

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controversy under Article III of the U.S. Constitution.

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16. Venue is proper in this Court pursuant to 28 U.S.C. §1391(a) because: (i)

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Company’s principal executive offices are located in this District; (ii) the Merger Agreem

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specifically states that notices, requests, and other communications to the Company shall

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mailed to the Company’s Pleasanton, California, address located in this District; (iii) one or m

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of the defendants either resides in or maintains executive offices in this District; (v) a substan

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portion of the transactions and wrongs complained of herein, including the defendants’ prim

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participation in the wrongful acts detailed herein, and aiding and abetting and conspiracy

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violation of fiduciary duties occurred in this District; and (vi) defendants have received substan

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compensation in this District by doing business here and engaging in numerous activities that h

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an effect in this District.

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17. This action is properly assigned to the Oakland division of this Court.



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PARTIES

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18. Plaintiff Barbara Templeton is, and has been, a shareholder of Safeway at all

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I times relevant hereto.

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19. Defendant Safeway is a Delaware corporation with principal executive offices

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located at 5918 Stoneridge Mall Road, Pleasanton, California. Accordingly, Defendant Safeway

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is a citizen of Delaware and California. Defendant Safeway is one of the largest food and drug

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retailers in North America. As of December 28, 2013, Defendant Safeway operated 1,335 stores

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in the Western, Southwestern, Rocky Mountain, and Mid-Atlantic regions of the United States.

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Defendant Safeway also has significant ownership interests in certain other “non-core assets.”

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Defendant Safeway owns 37.8 million shares of Blackhawk, representing approximately 72.2%

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of Blackhawk’s outstanding shares. Blackhawk is a leading prepaid payment network that

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utilizes proprietary technology to offer a broad range of gift cards, other prepaid products, and

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payment services. In addition, defendant Safeway owns 49% of Casa Ley, the fifth-largest food

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and general merchandise retailer in Mexico based on sales. Upon completion of the Proposed

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Transaction, defendant Safeway will become a wholly-owned subsidiary of defendant

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Albertson’s Holdings.

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20. Defendant Robert L. Edwards (“Edwards”) is Safeway’s Chief Executive Officer

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(“CEO”) and a director and has been since May 2013 and President and has been since April

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2012. Defendant Edwards was also Safeway’s Chief Financial Officer from 2004 to February

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2013 and Executive Vice President from 2004 to April 2012. Defendant Edwards is a

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Blackhawk director and has been since July 2008. Defendant Edwards was also a Blackhawk

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director from January 2006 to August 2007. Defendant Edwards is a citizen of California.

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21. Defendant T. Gary Rogers (“Rogers”) is a Safeway’s Chairman of the Board and

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has been since May 2013 and a director and has been since March 2011. Defendant Rogers was

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also Safeway’s Lead Independent Director from January 2012 to May 2013. Defendant Rogers

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I is a citizen of California.

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22. Defendant William Y. Tauscher (“Tauscher”) is a Safeway director and has bee

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since May 1998. Defendant Tauscher is also Blackhawk’s CEO and has been since August 201



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Chairman of the Board and has been since August 2009, and a director and has been since Augus

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2007. Defendant Tauscher was also Blackhawk’s Executive Chairman from March 2010 to

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August 2010 and President from August 2010 to November 2010. Defendant Tauscher is a citizen

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of California.

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23. Defendant Mohan Gyani (“Gyani”) is a Safeway director and has been since

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October 2004. Defendant Gyani is also a Blackhawk director and has been since August 2007

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Defendant Gyani is a citizen of California.

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24. Defendant Arun Sarin (“Sarin”) is a Safeway director and has been since Augu

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2009. Defendant Sarin is also Blackhawk director and has been since August 2009.

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I Sarin is a citizen of California.

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25. Defendant Janet E. Grove (“Grove”) is a Safeway director and has been since

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October 2004. Defendant Grove is a citizen of California.

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26. Defendant Frank C. Herringer (“Herringer”) is a Safeway director and has been

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since March 2008. Defendant Herringer is a citizen of California.

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27. Defendant Kenneth W. Oder (“Oder”) is a Safeway director and has been since

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March 2008. Defendant Oder is a citizen of California.

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28. Defendant George J. Morrow (“Morrow”) is a Safeway director and has been

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since May 2013. Defendant Morrow is a citizen of California.

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29. Defendant AB Acquisition is a Delaware limited liability company with principal

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executive offices located at 250 Parkcenter Boulevard, Boise, Idaho. Accordingly, defendant

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I AB Acquisition is a citizen of Delaware and Idaho. Defendant AB Acquisition operates ACME,

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Albertsons, Jewel-Osco, Lucky, Shaw’s, Star Market and Super Saver, and stores under the

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United Family of stores, including Amigos, Market Street, and United Supermarkets. In total,

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defendant AB Acquisition operates 1,075 stores and fourteen distribution centers in twenty-nine

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states. Defendant AB Acquisition is privately owned and controlled by an investor group led by

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defendant Cerberus Capital and including Kimco Realty Corporation, Klaff Realty, Lubert-Adler

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Partners, and Schottenstein Stores Corporation.


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30. Defendant Albertson’s Holdings is a Delaware limited liability company and a

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wholly-owned subsidiary of defendant AB Acquisition. Defendant Albertson’s Holdings is a

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citizen of Delaware.

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31. Defendant Albertson’s LLC is a Delaware limited liability company and a

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wholly-owned subsidiary of Albertson’s Holdings. Defendant Albertson’s is a citizen of

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Delaware.

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32. Defendant Merger Sub is a Delaware corporation and wholly-owned subsidiary

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of Albertson’s Holdings. Upon completion of the Proposed Transaction, defendant Merger Sub

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will merge with and into Safeway and cease its separate corporate existence. Defendant Merger

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I Sub is a citizen of Delaware.

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33. Defendant Cerberus Capital is a Delaware limited partnership with principa

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executive offices located at 875 Third Avenue, Eleventh Floor, New York, New York

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Accordingly, defendant Cerberus Capital is a citizen of Delaware and New York. Defendan

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Cerberus Capital is one of the world’s leading private investment firms and has more than $25

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billion under management invested in four primary strategies: distressed securities & assets

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control and non-control private equity; commercial mid-market lending; and real esta

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investments. Defendant Cerberus Capital leads the investor group that owns and

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defendants AB Acquisition, Albertson’s Holdings, Albertson’s LLC, and Merger Sub.

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CLASS ACTION ALLEGATIONS

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34. Plaintiff brings this action for itself and on behalf of all holders of Safewa

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common stock which have been or will be harmed by the conduct described herein (the “Class”)

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Excluded from the Class are defendants and any individual or entity affiliated with any defendant.

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35. This action is properly maintainable as a class action.

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The Class is so numerous that joinder of all members is impracticable.

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to the Merger Agreement, there were more than 230 million ordinary shares of Safeway comm

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stock outstanding as of March 4, 2014, owned by thousands of investors throughout the Uni

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I States.


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37. There are multiple questions of law and fact which are common to the Class

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which predominate over questions affecting any individual Class member, including:

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(a) whether the Proxy contains material misstatements or omissions in

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I violation of sections 14(a) and 20(a) of the Exchange Act;

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(b) whether the Individual Defendants have breached any of their obligations

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I and/or duties owed to plaintiff and the other members of the Class in connection with the

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Proposed Transaction by: (i) failing to take steps to maximize the value of Safeway to its public

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shareholders; (ii) failing to properly value Safeway and its various assets and operations; and/or

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(iii) ignoring and not protecting Safeway shareholders against the numerous conflicts of interest;

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(c) whether the Individual Defendants are conflicted, engaged in self-dealing,

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or have otherwise unjustly enriched themselves or the other insiders/affiliates of Safeway in

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connection with the Proposed Transaction;

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(d) whether the Individual Defendants, in bad faith and for improper motives,

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impeded or erected barriers designed to discourage other potentially interested parties from

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making an offer to acquire the Company or its assets;

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(e) whether any of the defendants aided and abetted any of the Board’s

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breaches of duty owed to plaintiff and other members of the Class in connection with the

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Proposed Transaction; and

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(f) whether plaintiff and the other members of the Class would suffer

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irreparable injury were the Proposed Transaction consummated without the wrongdoing

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complained of herein being corrected.

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38. Plaintiff’s claims are typical of the claims of the other members of the Class and

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plaintiff does not have any interests adverse to the Class.

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39. Plaintiff has retained competent counsel experienced in litigation of this nature

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will fairly and adequately represent and protect the interests of the Class.

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40. The prosecution of separate actions by individual members of the Class

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create a risk of inconsistent or varying adjudications with respect to individual members of t

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Class which would establish incompatible standards of conduct for the party opposing the Class.



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41. Plaintiff anticipates that there will be no difficulty in the management of t

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litigation. Indeed, a class action is superior to other available methods for the fair and efficie

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adjudication of this controversy.

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42. Defendants have acted on grounds generally applicable to the Class with respect

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the matters complained of herein, thereby making appropriate the relief sought with respect to t

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Class as a whole.

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INDIVIDUAL DEFENDANTS’ FIDUCIARY DUTIES

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43. Under Delaware law, in any situation where the directors of a publicly tra

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corporation undertake a transaction that will result in a sale or change in corporate control, t

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have an affirmative fiduciary obligation to obtain the highest value reasonably available for

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corporation’s shareholders, including a significant control premium. To diligently comply w

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these duties, neither the officers nor the directors may take any action that:

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(a) adversely affects the value provided to the corporation’s shareholders;

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(b) will discourage, inhibit, or deter alternative offers to purchase control of

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corporation or its assets;

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(c) contractually prohibits themselves from complying with their fiduci

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I duties;

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(d) will otherwise adversely affect their duty to secure the best value reasona

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available under the circumstances for the corporation’s shareholders; and

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(e) will provide the directors and/or officers with preferential treatment at

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expense of, or separate from, the public shareholders.

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44. In accordance with their duties of loyalty and good faith, the Individ

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Defendants, as directors, officers, and/or majority shareholders of Safeway are obligated un

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Delaware law to refrain from:

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(a) participating in any transaction where the directors’ or officers’ loyalties

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I divided;

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(b) participating in any transaction where the directors or officers receive,

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are entitled to receive, a personal financial benefit not equally shared by the public shareholders

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the corporation; and

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(c)

unjustly enriching themselves at the expense or to the detriment of

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public shareholders.

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45. The Individual Defendants, separately and together, in connection with t

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Proposed Transaction, are knowingly or recklessly violating their fiduciary duties and aiding a

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abetting such breaches, including their duties of loyalty, good faith, and independence owed

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plaintiff and other public shareholders of Safeway. Certain of the defendants are obtaining

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themselves personal benefits, including personal financial benefits not shared equally by plaint

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or the Class (as defined herein). Accordingly, the Proposed Transaction will benefit the Individ

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Defendants in significant ways not shared with the Class members. As a result of the Individ

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Defendants’ self-dealing and divided loyalties, neither plaintiff nor the Class will receive adequ

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or fair value for their Safeway common stock in the Proposed Transaction.

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46. Because the Individual Defendants are knowingly or recklessly breaching th

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fiduciary duties of loyalty, good faith, and independence in connection with the Proposed

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Transaction, the burden of proving the inherent or entire fairness of the Proposed Transaction

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including all aspects of its negotiation, structure, price, and terms, is placed upon defendants as a

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matter of law.

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THE PROPOSED TRANSACTION

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47. On March 6, 2014, Safeway and Albertsons issued a press release announcing

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that the Individual Defendants had agreed to sell the Company to Albertsons for $32.50 per

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Safeway share plus special dividends and/or CVRs related to the planned disposition of certain

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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

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Safeway (the “Merger”). The merger agreement was unanimously approved by

28 the Board of Directors of Safeway.



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AB Acquisition is the owner of Albertson’s LLC and New Albertson’s, Inc. (collectively “Albertsons”) and is controlled by a Cerberus Capital Management, L.P. (“Cerberus”)-led investor group, which also includes Kimco Realty Corporation (NYSE:KIM), Klaff Realty LP, Lubert-Adler Partners LP, and Schottenstein Stores Corporation.

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 primarily non-core assets, and the distribution of Blackhawk shares, Safeway shareholders are expected to receive total value estimated at $40 per share.

Albertsons’ Chief Executive Officer Bob Miller stated, “This transaction offers us the opportunity to better serve customers by adapting more quickly to evolving shopping preferences in diverse regions across the country. It also brings together two great organizations with talented management teams. Robert Edwards and his team have done an outstanding job in positioning Safeway’s core business for success, by investing in its stores and creating innovative strategic marketing programs that contribute to shareholder value. Working together will enable us to create cost savings that translate into price reductions for our customers. Together, 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.”

“This Merger is one of several actions we have taken in recent months as a result of our strategic business review. The combined value of the transactions described 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, President & Chief Executive Officer of Safeway Inc. “Safeway has been focused on better meeting shoppers’ diverse needs through local, relevant assortment, an improved price/value proposition and a great shopping experience that has driven 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 of the Albertsons team as we proceed together on a path towards becoming an even stronger organization.”

Value to Safeway Shareholders

Under the merger agreement, Safeway shareholders will receive $32.50 per share in cash. Additionally, shareholders will have the right to receive pro-rata distributions of net proceeds from primarily non-core assets with an estimated value of $3.65 per share. The proceeds are from:

1. The sale of the assets of real-estate development subsidiary Property Development Centers, LLC (“PDC”) comprised of its shopping center portfolio including certain related Safeway stores, and

2. The monetization of its 49% equity interest in Mexico-based food and general merchandise retailer Casa Ley, S.A. de C.V. (“Casa Ley”).

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If the sales of PDC and/or Casa Ley are completed prior to the closing of the Merger, the net proceeds from these sales will be paid to shareholders at or 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 shareholders will receive a non-transferable contingent value right (a “CVR”), which will provide shareholders with their pro-rata share of the net proceeds from the PDC and/or Casa Ley sales, as applicable, subject to the terms and 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 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 time. There can be no assurances that Safeway will be able to sell either or both of PDC or Casa Ley.

Distribution of Blackhawk Shares

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 in mid-April and prior to the completion of the Merger. Safeway’s shares of 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 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 the value of the Blackhawk shares will be determined at the time of the distribution 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 completion of the Acquisition, and is being undertaken for independent business reasons. The Blackhawk distribution is intended to maximize the value of Safeway’s long-term investment in Blackhawk, which the Board determined to be in the best interests of Safeway, Blackhawk, and the shareholders of both companies.

In connection with the completion of the Merger, it is expected that Safeway’s distribution of Blackhawk shares will be taxable to Safeway and Safeway’s 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 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 over 15 years, this tax savings, resulting from future tax deductions, is valued at approximately $4.50 per Blackhawk share and $0.70 per Safeway share.

* * *

About the Combined Company


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The Merger will create a diversified network that includes over 2,400 stores, 27 distribution facilities and 20 manufacturing plants with over 250,000 dedicated and loyal employees. No store closures are expected as a result of this transaction.

Bob Miller, Albertsons current Chief Executive Officer, will become Executive Chairman. Robert Edwards, Safeway’s current President and Chief Executive Officer, will become President and Chief Executive Officer of the combined company.

Banners will include Safeway, Vons, Pavilions, Randalls, Tom Thumb, Carrs, Albertsons, ACME, Jewel-Osco, Lucky, Shaw’s, Star Market, Super Saver, United Supermarkets, Market Street and Amigos.

The Merger will enable Albertsons and Safeway to implement operational best practices in order to offer customers an enhanced shopping experience and more competitive prices, while enabling the combined company to pursue industry-leading customer service in an increasingly competitive and dynamic marketplace. Realizing substantial cost savings will allow for investments that are expected to benefit customers, including price reductions as well as store remodels and refurbishments. The diversified network of retail assets, associated distribution centers and manufacturing assets will allow for a broader assortment of products, a more efficient distribution and supply chain, enhanced fresh and perishable offerings, and expanded private label alternatives for customers.

“Albertsons has successfully transformed underperforming retail grocery stores into strong performers by focusing on enhancing the local customer experience,” said Lenard Tessler, Co-Head of Global Private Equity and Senior Managing Director at Cerberus. “Similarly, Safeway has consistently provided outstanding value and customer service throughout the communities it serves. Combining these strong management teams will strengthen the ability of Safeway and Albertsons to deliver on a shared commitment to offering customers higher quality products at lower prices, which will undoubtedly yield positive results for all stakeholders in the business.”

Timing and Closing Conditions

The Merger is expected to close in the fourth quarter of 2014 following the 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 regulatory approvals including expiration or termination of the waiting period 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 pay Safeway $400 million.

* * *

Go-Shop Period



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The merger agreement includes a so-called “go-shop” period, during which Safeway, with the assistance of Goldman Sachs, its financial advisor, will actively 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 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 person that submitted a qualifying proposal during the 21-day period. A 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 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 proposal. Safeway does not intend to disclose developments with respect to the solicitation process unless and until its Board has made a decision with respect to any potential superior proposal.

Advisors

Goldman Sachs, Sachs & Co. served as financial advisor to Safeway in connection with the Company’s strategic review and the transactions. Greenhill & Co. has also served as financial advisor to Safeway. Latham & Watkins LLP served as Safeway’s outside legal counsel. Citigroup, lead financial advisor, Bank of America Merrill Lynch and Credit Suisse served as financial advisors to Albertsons, Cerberus and the investor group. Schulte Roth & Zabel LLP served as lead outside legal counsel to Albertsons, Cerberus and the investor group, and Dechert LLP, Schulte Roth & Zabel LLP and Baker Botts LLP served as outside legal counsel on antitrust matters.

Property Development Centers and Casa Ley

Formed in 2008, PDC is a wholly owned subsidiary of Safeway Inc., engaged in retail shopping center development and capitalizing on Safeway’s core real estate competency. PDC projects are concentrated in Safeway’s urban and suburban markets, and are predominantly located in California and Hawaii. PDC’s portfolio consists of 25 properties with an estimated three million square feet, and is comprised of 11 operating assets, nine projects under construction, and five projects in the due diligence and entitlement phases. Safeway will soon be initiating a process to sell PDC.

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 publicly disclose financials. Safeway has begun discussions with the majority owners of Casa Ley regarding a potential sale of Safeway’s interests.

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 that Safeway has performed with the help of financial advisors, valuations from


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independent third parties and market information. The actual net after-tax proceeds received upon a sale could vary substantially from these estimates.

48. Shortly thereafter, on March 10, 2014, Safeway filed a DEFA14A and Form 8-

with the U.S. Securities and Exchange Commission (“SEC”), wherein it disclosed the

Agreement. In addition to revealing that the Proposed Transaction is the product of a flawed

process and, unless the offer price is increased, would be consummated at an unfair price,

Merger Agreement contains numerous overly preclusive deal protection devices designed

preclude any competing bids for Safeway from emerging and ensuring that Defendants secure

I personal benefits that they negotiated for in connection with the close of the Proposed

49. For example, despite defendants touting the limited “go-shop” period in the

release announcing the Proposed Transaction, the Merger Agreement confirms that provision

included purely to create the illusion of a fair and competitive bidding process. Section 5.8(a)

the Merger Agreement allows Safeway just twenty-one days to solicit alternative proposals a

section 5.8(c) requires that all negotiations with competing bidders that make offers for t

Company during the “go-shop” period must be concluded within fifteen days of the expiration

the “go-shop” period.

50. By way of comparison, the Proposed Transaction required months to negotiate

finalize with rumors of a potential deal circulating as far back as October 2013,

I confirming those rumors in its February 19, 2014 earnings press release, and the Propo

Transaction being announced in early March. After engaging in the over five month negotiat

process with Albertson’s, defendants were fully aware that thirty-six days is an impractical amo

of time to negotiate a deal of this size and complexity. As a result, the agreed “go-shop” per

was not intended to create a truly fair and competitive bidding process that would result in

improved consideration for the Company’s shareholders as implied.

51. Not surprisingly, on March 28, 2014, Safeway announced that the “go-shop”

had expired without the Company receiving any alternative proposals. In an analyst

I published March 31, 2014, Deutsche Bank’s Short wrote that she was not surprised that there

been no alternative proposals because three weeks may have been insufficient time for The



1

Co. (“Kroger”), the most likely competing bidder, to make a “risk free” offer. Short observed

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Kroger would have needed to provide “detailed market by market concentration analysis” in

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I make a competing bid, which was “simply not possible in a 21-day period.”

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52. The likelihood of another offer emerging is even further reduced by section 5.8(

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of the Merger Agreement which conveys upon Albertsons unlimited information and matchi

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rights in the event that a superior proposal is ultimately received by the Company. This matchi

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rights provision requires the Company to disclose the terms of any potentially superior proposal

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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

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proposal. Given defendant Albertsons’ right to match any competing offer, a rival bidder is ev

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less likely to emerge.

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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

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7.2(b) of the Merger Agreement should it decide to accept the alternative proposal. Now that t

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“go-shop” period has expired, however, the termination fee payment required for entering into

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competing transaction is $250 million. Accordingly, not only will any competing bidder have

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beat Albertsons’ best offer for Safeway, it will also have to pay a premium in order to cover t

19

excessive termination fee.

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54. The structure of the Proposed Transaction and, in particular, the Board’s

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to distribute Safeway’s ownership stake in Blackhawk (the “Blackhawk Distribution”) to

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shareholders prior to the completion of the Proposed Transaction, have further decreased

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likelihood of a competing bidder emerging. Safeway first announced the Blackhawk Distribut

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on February 19, 2014 – at the same time it disclosed the ongoing merger talks with Albertsons.

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this time, negotiations had reached a point where it was clear to the Board that Albertsons was

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I interested in acquiring the Company’s Blackhawk interest and they had to take action in order

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I get a deal done. However, a competing bidder might be interested in acquiring the B

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shares along with the Company and may be willing to pay more for Safeway than what is



1

I offered in the Proposed Transaction. Rather than pursue this possibility, however, the Indivi

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Defendants pushed ahead with the Blackhawk Distribution on an expedited basis – completing

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spin-off on April 17, 2014, shortly after the post-”go-shop” negotiating window closed. T

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made it extremely difficult for any potentially competing offer to secure a deal for Safeway

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included the acquisition of its interest in Blackhawk from being made.

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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

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all stockholders of the Company and ensure that the Board remains in the best position t

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discharge its fiduciary duties to the Company and its stockholders” it is really just anoth

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preclusive deal protection devise. The terms of the Rights Agreement prevent competing bidde

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from presenting their acquisition proposals directly to Safeway’s shareholders without the suppo

14

of the Board.

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56. Collectively, these onerous and preclusive provisions and agreements, which

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serve to unreasonably deter and discourage superior offers from other interested parties and ens

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the acquisition of the Company by Albertsons, were agreed to by the Individual Defendants

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help secure the personal benefits and unfair profits afforded to them through the Propos

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Transaction and all but ensure that no other bidder steps forward to submit a superior proposal.

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THE PRECLUSIVE DEAL PROTECTION DEVICES

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57. On March 10, 2014, Safeway filed a DEFA14A and Form 8-K with the U.S

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Securities and Exchange Commission (“SEC”), wherein it disclosed the Merger Agreement.

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Merger Agreement reveals that the Proposed Transaction is the product of a flawed sales pr

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and, unless the offer price is increased, would be consummated at an unfair price. The M

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Agreement also reveals that the Individual Defendants agreed to numerous deal protection de

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designed to preclude any competing bids for Safeway.

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58. Despite the defendants’ efforts to create the illusion of a fair process by including

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so-called “go-shop” period in the Merger Agreement, in reality the “go-shop” period is far



1

brief to allow for any meaningful bidding contest. Section 5.8(a) of the Merger Agreement allo

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Safeway just twenty-one days to solicit alternative proposals and section 5.8(c) requires that

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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

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contrast, the Proposed Transaction required months to negotiate and finalize.

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59. On February 19, 2014, in its earnings press release announcing fourth quarter an

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full year 2013 financial results, Safeway at last confirmed that discussions regarding a potentia

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transaction were ongoing with an unnamed bidder. However, the Proposed Transaction was no

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agreed to and announced for another two weeks. The defendants were fully aware that thirty-si

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days is an impractical amount of time to negotiate a deal of this size and complexity. As a resul

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the agreed “go-shop” period was intended to discourage alternative proposals for Safeway, rathe

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than create a truly fair and competitive bidding process that would result in an improve

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consideration for the Company’s shareholders.

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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

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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

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Co. (“Kroger”), the most likely competing bidder, to make a “risk free” offer. Short observed

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Kroger would have needed to provide “detailed market by market concentration analysis” in o

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make a competing bid, which was “simply not possible in a 21-day period.”

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61. The likelihood of another offer emerging is even further reduced by section 5.8(

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of the Merger Agreement which conveys upon Albertsons unlimited information and matchin

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rights in the event that a superior proposal is ultimately received by the Company. This matchin

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rights provision requires the Company to disclose the terms of any potentially superior proposal

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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

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proposal. Given defendant Albertsons’ right to match any competing offer, a rival bidder is ev

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less likely to emerge.



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62. In the unlikely event that a competing bidder was able to put together and negotiat

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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

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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

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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

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Company. Safeway first announced the distribution of its Blackhawk shares on February 19, 2014

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in the same press release that it disclosed the ongoing merger talks. By that time, negotiation

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between Safeway and Albertson’s had reached a point where it was clear to the Board tha

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Albertson’s was not interested in acquiring these particular assets. However, a competing b

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might have been interested in acquiring the Blackhawk shares along with the Company. In

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to discourage any such bidder, the Individual Defendants have pushed ahead with the Black

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distribution on an expedited basis. At the time that the Proposed Transaction was first annou

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Safeway was set to complete the Blackhawk distribution in mid-April 2014, around the same tim

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that the post-”go-shop” negotiating window closes, making it extremely difficult for a competin

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bidder to secure a deal for Safeway that included its Blackhawk shares. On April 8, 201

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Safeway confirmed in a press release that the Blackhawk distribution was set to go ahead on Apr

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14, 2014.

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64. Finally, on September 16, 2013, the Board adopted a Rights Agreement with a

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year term, otherwise known as a “poison pill,” that effectively prevents any investor from

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acquiring more than a 10% stake in the Company. Though the Rights Agreement was purportedl

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adopted to “help promote the fair and equal treatment of all stockholders of the Company an

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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

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Agreement prevent competing bidders from presenting their acquisition proposals directly t

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Safeway’s shareholders without the support of the Board.



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65. Collectively, these onerous and preclusive provisions and agreements, which w

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serve to unreasonably deter and discourage superior offers from other interested parties and ensu

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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

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deeply flawed and conflicted sales process that virtually guaranteed a sale to Albertson’

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precluding the submission of any other competing bids, even bids that may have been mor

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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

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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.

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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

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Goldman Sachs refinanced a $1.85 billion loan for Cerberus Capital’s Kyo-ya Hotels & Reso

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portfolio and in 2013, Goldman Sachs served as lead underwriter for the initial public offering

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Cerberus Capital’s German real estate portfolio. Cerberus Capital has historically provid

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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.

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68. In fact, the Proposed Transaction fits a familiar pattern involving Goldman Sac

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Cerberus Capital, and grocery chain acquisition targets. In 2006, Goldman Sachs served

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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

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(“SuperValu”) when it was acquired by Cerberus Capital-led Albertson’s.



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

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industry source claims that Goldman Sachs rejected several expressions of interest from

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prospective strategic and private equity sources following Safeway’s confirmation of

11

negotiations on February 19, 2014.

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70. Finally, even the Proxy Statement reveals that a third company offered to purchas

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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


Transaction. However, this figure undervalues Safeway’s substantial assets and is based on

unrealistic expectations of the Company’s ability to monetize its “non-core assets.”

73. Safeway is one of the largest food and drug retailers in the United States with

of $36.1 billion in 2013. The Company operates 1,335 stores in twenty states and the District o

Columbia, thirteen distribution centers and twenty manufacturing plants, and employ

approximately 138,000 employees. Safeway also owns significant “non-core assets,” specificall

Blackhawk, Casa Ley, and PDC. This portfolio of assets has served as the platform for th

Company’s solid and improving financial results. Safeway has beat consensus analyst estimate

for adjusted EPS in eight of the past ten quarters. On February 19, 2014, the Company reporte

financial results for the fourth quarter and full year of 2013. Sales and other revenue was $11.

billion for the quarter compared to $11.2 billion for the fourth quarter of 2012. Gross prof

margin also increased year-over-year, reaching 26.52% of sales for the fourth quarter of 2013 an

26.27% for the full year of 2013.

74. During Safeway’s 2013 fourth quarter earnings conference call held on Fe

19, 2014, defendant Edwards confirmed that the Company is executing on its plans to make

core business more profitable:

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 growth. To generate these results, we are focused on delivering value to our shoppers, offering a relevant assortment and providing a differentiated in-store experience. We continue to evolve our customer-centric approach down to the store 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 right strategies to better serve the unique needs of our shoppers. These initiatives include clustering, localization and personalization.

* * *

In addition, we are continuing to leverage our data to drive loyalty to Just for U and 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 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 successfully expanded to all divisions except one. Our private brands portfolio continues to grow and contribute to loyalty and profitability. Private brands sales

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reached an all-time high in 2013 at 28.1% as measured as a percent of total grocery sales. Additionally, we continued to realize success with our multi-category organic and natural brands. Open Nature sales increased 42% from last year and exceeded $200 million in 2013.

We now have over 450 Open Nature items. Innovation and private brands continues as we launched 774 new private brand items in 2013.

Tr. Conf. Call, Safeway, Inc. Fourth Q2013, Feb. 19, 2014, available at

http://www.morningstar.com/earnings/earnings-call-transcript.aspx?t=SWY&pindex=3 (emphasis

added).

75. Not surprisingly, the market has begun to recognize the underlying value o

Safeway’s assets and operations and also the Company’s future earnings potential. In 2013

Safeway’s stock price appreciated by more than 80%, gaining 56% even before initial dea

speculation drove its price higher in September 2013 and 81% before the first rumors of a

Cerberus Capital-led deal with Albertsons’ reached the market in October 2013.

76. Unfortunately, the Proposed Transaction will put an end to the Company’s r

financial improvement and the potential benefits that would accrue to Safeway shareho

Furthermore, the Proposed Consideration substantially undervalues the Company’s current

and their earnings potential.

77. Prior to the announcement of the Proposed Transaction, four analysts had

targets above the Proposed Consideration of approximately $40:

(a) on February 20, 2014, Joseph I. Feldman of the Telsey Advisory Group

a price target of $46 per share;

(b) on February 20, 2014, Scott A. Mushkin of Wolfe Research set a

target of $46 per share;

(c) on October 15, 2013, Charles E. Cerankosky of Northcoast Research set

price target of $45; and

(d) on October 28, 2013, Andrew P. Wolf of BB&T Capital Markets set a

target of $44 per share.


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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

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that an acquisition of Safeway by Albertsons, led by defendant Cerberus Capital, would b

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“reasonable” at as much as $56 per share . In a subsequent report published on February 2



2014, Short estimated that any deal would likely fall in the range of $45 to $55 per share . Sh

also noted that a deal would likely produce at least $900 million in synergies and would be

especially attractive proposition for Albertsons, bringing its total number of stores to more th

2,400 and making it the second largest grocer nationally and the leading grocer in seventeen

twenty-four national markets.

83. Moreover, the Proxy Statement provides that on March 5, 2014, a

bidder, identified only as Company A, made an offer to acquire Safeway for $38.50 to $42.00

share in cash, including an assumed value of $4.70 per share for the Blackhawk shares

to Safeway shareholders.

84. Following the announcement of the Proposed Transaction in Short’s report

I March 7, 2014, Short described the merger as “a great deal” for Albertsons but warned that

undervalues Safeway:

A Great Deal for Cerberus ...

Assuming the deal closes, Cerberus would pay only —$9B (—$7.6B of cash and 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, 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 our estimates and given the myriad opportunities for synergies (e.g., administrative/OH, advertising, rationalizing distribution, private brands, purchasing, etc.). We believe the current offer undervalues [Safeway].

85. Short also highlighted an additional concern for Safeway shareholders by

that the CVRs do not represent guaranteed income:

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 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) and could expire worthless in two years for the PDC CVR.

86. Ajay Jain, an analyst at Cantor Fitzgerald LP, echoed this concern in a

analyst report published on March 7, 2014, writing that PDC will “remain a drain on cash flo

and a sale may not generate meaningful proceeds” for Safeway shareholders.

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87. Market activity since the announcement of the Proposed Transaction also suggest

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that the $40 price tag touted by defendants is unrealistic. The Company’s shares have traded wel

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below the Proposed Consideration, dropping 2% the day following the announcement and closin

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at $38.88 on March 10, 2014, more than a dollar less than the Proposed Consideration. Safeway’

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stock has continued to trade well below the Proposed Consideration in the month since th

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Proposed Transaction was announced, closing at $37.97 on April 8, 2014.

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88. The reaction of analysts and the market to the Proposed Transaction has bee

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reinforced by the fact that it is a historically cheap deal. According to data compiled 1

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Bloomberg, the Proposed Transaction is the food retail industry’s lowest valuation in almost

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decade as similar-sized deals have a median transaction multiple of 9.9 times earnings bef

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interest, taxes, depreciation, and amortization (“EBITDA”). Meanwhile, the EBITDA multiple

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the Proposed Transaction is just 5.5 times Safeway’s last twelve months EBITDA of $1.6 billi

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Applying the median multiple to the Company’s last twelve months EBITDA creates an impl

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transaction value of $15.8 billion, or more than $67 per share . A more conservative comparis

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might be Kroger’s 2013 acquisition of Harris Teeter Supermarkets Inc. which had a multiple

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just 7 times EBITDA. However, the implied transaction value for Safeway based on this low

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multiple is still $11.2 billion, or nearly $48 per share .

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89. The Proposed Consideration plainly undervalues Safeway’s core and non-c

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assets and represents a grossly inadequate premium for a company of its size and stature in th

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food retail industry. Worse yet, only a portion of the Proposed Consideration is guaranteed and i

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actual economic value to Company shareholders may in fact be substantially less than the $40 p

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share figure claimed by defendants.

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SELF-DEALING

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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’

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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

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I inherently unfair for the Individual Defendants to execute and pursue any merger or acquisiti



under which they will reap disproportionate benefits to the exclusion of obtaining the b

shareholder value reasonably available. Nonetheless, the Proposed Transaction represents

effort by the Individual Defendants to aggrandize their own financial position and interests at

expense of and to the detriment of the Class (as defined herein) by denying the Class memb

their shareholders’ rights by selling Safeway via an unfair process and at an inadequate pri

Accordingly, the Proposed Transaction will benefit the Individual Defendants at the expense

Safeway shareholders.

91. Instead of attempting to negotiate an agreement reflecting the best

I reasonably available for Safeway shareholders who they are duty-bound to serve, the

Defendants disloyally placed their own interests first, and tailored the terms and conditions of th

Proposed Transaction to meet their own personal needs and objectives by agreeing to sell th

Company to Albertsons for an inadequate consideration. Accordingly, the Proposed Transactio

will improperly benefit the defendants at the expense of Safeway’s public shareholders’ rights t

receive the best consideration reasonably available for their Company shares. For example

defendant Rogers is set to become President and CEO of the post-merger company and therefor

will receive unique benefits as a result of the Proposed Transaction. Meanwhile, Safeway’

employees at the Vice President level or above are not given positions at the post-merger compan

and will received sizeable severance awards under Safeway’s newly-adopted Severance Plan. O

February 12, 2014, the Executive Compensation Committee of the Board adopted and approve

the Severance Plan which provide for the following compensation in the event of a

Termination,” which includes a change-in-control:

• 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 case of each Executive Vice President, of the termination date;

• upon attainment of the performance criteria with respect to the annual cash 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 generally; and

• payment of COBRA premiums, or if eligible, participant contributions under the Safeway Inc. Welfare Benefits Plan for Retirees, or the

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equivalent, until the second annual anniversary, in the case of the Chief Executive Officer, or the 18 month anniversary, in the case of each Executive Vice President, of the termination date.

92. Additionally, if an executive is terminated during the twenty-four-month

I following a change-in-control, the executive is entitled to the following payments under

I Severance Plan:

• a lump sum payment equal to the executive officer’s base salary for two years, in the case of the Chief Executive Officer, or 18 months, in the case of each Executive Vice President;

• a lump sum payment equal to the executive officer’s target cash bonus opportunity for the fiscal year of termination; and

• payment of COBRA premiums, or if eligible, participant contributions under the Safeway Inc. Welfare Benefits Plan for Retirees, or the equivalent, until the second annual anniversary, in the case of the Chief Executive Officer, or the 18 month anniversary, in the case of each Executive Vice President, of the termination date.

93. Under the newly-adopted Severance Plan, defendant Edwards is also protected in

the event that his employment with the post-merger company does not last. According to

terms of the Severance Plan and based on the most recently disclosed compensation

defendant Edwards will receive more than $3.5 million in severance pay if he is terminated

two years of the completion of the Proposed Transaction.

94. In addition to guaranteeing to Safeway insiders benefits that are not available

common shareholders, the Severance Plan also functions as a de facto deal preclusive d

Prior to its adoption, Safeway had a long-standing policy of not offering its executive o

contractual change-in-control or severance payments. The Company’s Proxy Statement on

DEF 14A filed with the SEC on April 1, 2013, discloses:

We have not historically entered into severance or change in control agreements with our executive officers providing for cash payments in the event of the executive’s termination, whether such termination is voluntary, for cause or otherwise. We believe that equity-based compensation motivates our executive officers to increase the market value of our stock and sufficiently aligns our executives’ interests with those of the Company and our stockholders.



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However, the Company reversed this position in February 2014 after negotiations with Albertso

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were already under way. By that point, Albertsons had most likely made clear in the course

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negotiations that it intended to keep the majority of Safeway’s management team following t

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completion of the Proposed Transaction. Therefore, the Severance Plan would have no impact o

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Cerberus Capital’s plan to acquire Safeway, but it puts any competing bidder in a position where

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will be forced to either retain the Company’s existing management or pay millions of dollars

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severance payments.

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95. The Individual Defendants were further motivated to engage in this transaction

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reasons that are not equally shared by other shareholders, such as plaintiff. Specifically

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Safeway’s officers and directors will receive millions of dollars due to the accelerated vesting o

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their equity awards guaranteed in the Proposed Transaction. In connection with his appoi

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as Safeway’s CEO in May 2013, defendant Edwards was granted 85,213 in performance

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that were not set to vest until the end of a three-year performance period. Under the I

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Agreement, these performance shares will be now canceled immediately prior to the Propo

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Transaction in exchange for compensation of more than $3.4 million. As of December 29, 20

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defendant Edwards also had more than 200,000 in other unvested performance shares a

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restricted stock units and nearly 300,000 in unvested options. These equity awards that rem

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unvested immediately prior to the Proposed Transaction will be canceled in exchange for

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merger consideration, resulting in millions of dollars in additional compensation to defen

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I Edwards.

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96. The Individual Defendants, in particular defendants Tauscher, Edwards, Gyani,

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Sarin who hold officer and director positions at Blackhawk, will also benefit

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from the planned Blackhawk distribution of Safeway’s Blackhawk shares. The Company

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announced that the Blackhawk distribution could result in approximately $30 million in cash

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savings per year for Blackhawk. Although Safeway’s common shareholders will be able

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participate in these savings through their newly-acquired Blackhawk shares, the Individ

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Defendants stand to gain much more from the Blackhawk distribution. As CEO, Chairman of

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Board, and a director of Blackhawk, defendant Tauscher’s compensation is tied directly



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Blackhawk’s financial performance which will be significantly improved by the tax savin

Additionally, defendant Edwards is not currently eligible to receive director compensation

connection with his position at Blackhawk because he is considered an employee director

virtue of his positions at Safeway. Following the distribution, and provided defendant Edwa

remains a Blackhawk director, he will receive additional compensation.

97. As a result of defendants’ conduct, Safeway’s public stockholders have been

will continue to be denied the fair process and arm’s-length negotiated terms to which they

entitled in a sale of the Company. The consideration reflected in the Merger Agreement does

reflect the true inherent value of the Company that was known only to the Individual Defenda

as directors of Safeway, and Albertsons at the time the Proposed Transaction was announced.

98. In light of the foregoing, the Individual Defendants must, as their fidu

obligations require:

• withdraw their consent to the merger of Safeway with defendant Albertson and allow the shares to trade freely without impediments such as the impractical “go-shop” period, matching rights, and termination fee provisions;

• act independently so that the interests of Safeway’s public stockholders will be protected;

• adequately ensure that no conflicts of interest exist between their own interests and their fiduciary obligation to maximize stockholder value or, if such conflicts exist, to ensure that all conflicts be resolved in the best interests of Safeway’s public stockholders; and

• solicit competing bids to Albertsons’ offer without the impediments discussed above to ensure that the Company’s shareholders are receiving the maximum value for their shares.

THE FALSE AND MATERIALLY MISLEADING PROXY

99. In an attempt to secure shareholder approval of the unfair Proposed Transactio

Safeway filed the false and misleading Proxy with the SEC on April 17, 2014. As detailed herei

I the Proxy misrepresents and/or omits material information necessary for Safeway shareholders


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make an informed decision regarding whether to vote in favor of the Proposed Transaction or seek

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appraisal of their shares - a direct contravention of Sections 14(a) and 20(a) of the Exchange Act.

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100. Specifically, the Proxy fails to provide Company shareholders with mate

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information and/or provides them with materially misleading information concerning (i)

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process leading to the Proposed Transaction, including the inherent conflicts of interest of

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negotiation parties; (ii) the material assumptions and inputs underlying the valuation analys

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performed by Goldman Sachs and Greenhill in connection with the preparation of their respecti

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fairness opinions; and (iii) the estimated financial projections/forecasts prepared by Compa

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management and provided to and/or relied upon by Goldman Sachs and Greenhill for purposes

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those analyses.

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Disclosure Deficiencies Concerning the Conflicted Sales Process

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101. With respect to the sales process that led to the Proposed Transaction, t

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Background of the Merger section contained on pages 51-66 of the Proxy is materially deficient

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that it fails to disclose:

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(a) the assets of Safeway that were discussed between Robert Miller and

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defendant Edwards in late August of 2013 (Proxy at 52);

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(b) the synergistic value of a transaction between Albertsons and Safeway as of

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September 5, 2013, according to Cerberus (Proxy at 52);

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(c) the strategic initiatives pertaining to Safeway’s different geographic

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initiatives that were discussed on or around September 16, 2013 (Proxy at 52);

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(d) the amount Goldman Sachs believed a private equity firm would likely pay

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to acquire Safeway as of October 17, 2013 (Proxy at 53);

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(e) the estimated synergistic value of a proposed transaction between Albertsons

24 and Safeway as of early November of 2013 (Proxy at 54);

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(f) the estimated value of Safeway’s real estate assets as of November 1, 2013

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(Proxy at 54);

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(g) the potential business opportunities that would result from a transaction

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between Albertsons and Safeway as of November 1, 2013 (Proxy at 54);



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(h) the geographic regions that the Executive Committee of the Board deemed

Safeway lacked broad acceptance by customers as of February 12, 2014 (Proxy at 59);

(i) the fees received by Goldman Sachs for any prior services it rendered on

behalf of Safeway, Colony, or Pritzker (Proxy at 82-83);

(j) whether Goldman Sachs and/or its affiliates/employees have any

investments with or in any of the business entities involved in the Proposed Transaction (or

any affiliate of such entities) that would be directly impacted by the closing of the Proposed

Transaction (Proxy at 82-83); and

(k) the total compensation received by Greenhill for services rendered on behalf

I of SUPERVALU INC. in connection with the sale of New Albertson’s Inc. to an investor

group led by Cerberus (Proxy at 85).

102. The omission of this information renders the following statements in the

I false and/or materially misleading in contravention of the Exchange Act:

(a) From page 52 of the Proxy:

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 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 of Safeway and Albertson’s LLC. In early September, advisors for Cerberus and Albertson’s LLC began a preliminary antitrust analysis concerning a potential merger of Safeway and Albertson’s LLC, and representatives of Cerberus, which is the largest equityholder of Ultimate Parent, contacted Goldman Sachs to inquire whether Safeway would be interested in discussing a potential transaction involving Albertson’s LLC. After obtaining authorization of Safeway’s Non-Executive Chairman, T. Gary Rogers (the “Board Chairman”), Mr. Edwards asked 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 possibility of a business combination. Goldman Sachs was asked to make this request given Goldman Sachs’ mergers and acquisitions and financial expertise.

On September 5, 2013, Mr. Edwards and Mr. Miller met and had a general conversation about the possibility of pursuing a strategic transaction. Although the parties discussed possible acquisition transactions, Mr. Miller indicated that his preference would be to discuss a merger transaction because he believed it would produce substantial synergies. Thereafter, Safeway and NAI and Cerberus executed a confidentiality agreement, and Cerberus provided Safeway with limited financial information and a preliminary estimate of synergies based on publicly available information, and counsel to Cerberus and Albertson’s LLC provided Safeway’s antitrust counsel with a preliminary antitrust analysis. During the course of the meeting, Mr. Edwards indicated that Safeway may want to sell certain of the



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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 Food stores.

On September 16, 2013, the Executive Committee of the Board (the “Executive Committee”) met and discussed strategic initiatives related to Safeway’s different geographic regions. The Executive Committee discussed the possibility of a strategic transaction with Albertson’s LLC or other grocery chains. The Executive Committee concluded that it was not the right time to pursue a transaction 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 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 selling stores or other assets in the Chicago region in order to eliminate recurring losses.

(b) From pages 53-54 of the Proxy:

Also at the Board meeting, Safeway’s senior management team presented their 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 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 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 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. The Board concluded that it would not pursue a sale of Safeway at that time, but 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 Canadian Sale. The Board unanimously approved an increase in the authorization under Safeway’s stock repurchase program by $2.0 billion and authorized 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 Sale.

* * *

Also following the publication of the Reuters article, Mr. Miller again contacted Mr. Edwards to express Albertson’s LLC’s continued interest in acquiring Safeway. After consulting with the Board Chairman, on November 1, 2013, Mr. Edwards, two other Safeway executives and Goldman Sachs met with Mr. Tessler, 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 Safeway. The discussions remained at a high level and included a discussion of possible synergies that could be realized from a combination of the companies based on Cerberus’ and Albertson’s LLC’s review of publicly available information concerning Safeway, the estimated value of Safeway’s real estate, and business opportunities arising from a potential combination of the two companies. 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 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,



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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 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. Edwards would have that role, there would be no discussion of Mr. Edwards’ employment terms or compensation.

On November 4, 2013, the Executive Committee met to discuss the possibility of pursuing a potential transaction with Albertson’s LLC and the separate synergy 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 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 Executive Officer of the combined company if a transaction were to occur. The Executive Committee decided that it was appropriate to continue discussions with 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 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 transaction. The Executive Committee authorized management to work with Cerberus and Albertson’s LLC to provide a more fully developed analysis of the 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 Albertson’s LLC. However, the Executive Committee concluded that Safeway would not permit Cerberus and Albertson’s LLC to undertake a due diligence 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 could form the basis for such discussions.

(c) From pages 59-60 of the Proxy:

On February 12, 2014, the Executive Committee met to discuss the February 6 Proposal. Goldman Sachs and Latham updated the Executive Committee on the terms of the February 6 Proposal. Safeway’s management estimated that the total 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. Although the Executive Committee believed that there should still be more negotiation on price, the Executive Committee concluded that the total implied 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 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 store same store sales compared to the prior year and that recent merchandising initiatives had produced positive results. Nonetheless, the Executive Committee was concerned that there were substantial risks associated with Safeway executing its business plan on a standalone basis, especially from increased competition in certain geographic regions where Safeway did not enjoy broad customer 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 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 results would likely continue to trade at a discount compared to peer companies.



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(d) From pages 82-83 of the Proxy:

Goldman Sachs and its affiliates are engaged in advisory, underwriting and financing, principal investing, sales and trading, research, investment management 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 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, commodities, currencies, credit default swaps and other financial instruments of Safeway, Blackhawk, Ultimate Parent, any of their respective affiliates and third parties, including affiliates and portfolio companies of (i) Cerberus, a significant 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 Entities’ equity commitment letters for the Merger (each, an “Equity Investor”), or any currency or commodity that may be involved in the transaction contemplated 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 Safeway in connection with, and participated in certain of the negotiations leading to, the transactions contemplated by the Merger Agreement. Goldman Sachs has provided certain investment banking services to Safeway and its affiliates from time to time for which the Investment Banking Division of Goldman Sachs has 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. Goldman Sachs also has provided certain investment banking services to Blackhawk and its affiliates from time to time for which the Investment Banking Division of Goldman Sachs has received, and may receive, compensation, including having acted as joint book-running manager with respect to a public offering of 11,500,000 shares of Class A Common Stock of Blackhawk by Safeway and other selling shareholders in April 2013. Goldman Sachs also has provided certain investment banking services to Ultimate Parent and its affiliates from time 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 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 certain investment banking services to Cerberus and its affiliates and portfolio companies from time to time for which the Investment Banking Division of 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 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 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 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 public offering of 632,500,000 shares of common stock by Aozora Bank, Ltd., a 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 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 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 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,



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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 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 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 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 of €300 million) of BAWAG P.S.K. in October 2013, and as joint lead book-runner 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 Inc. in January 2014. During the two-year period ended March 6, 2014, the Investment Banking Division of Goldman Sachs has received compensation for financial advisory and/or underwriting services provided directly to Cerberus and/or to its affiliates and portfolio companies (which may include companies that are not controlled by Cerberus) of approximately $124 million. Goldman Sachs also has provided certain investment banking services to Colony and its affiliates and portfolio companies from time to time for which the Investment Banking Division of Goldman Sachs has received, and may receive, compensation, 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 million) of Colony in April 2013. Goldman Sachs also has provided certain investment banking services to Pritzker and its affiliates and portfolio companies from time to time for which the Investment Banking Division of Goldman Sachs has received, and may receive, compensation, including having acted as joint 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 portfolio company of Pritzker, in October 2013, as joint lead arranger, joint book-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 arranger, joint book-runner and lender with respect to a senior unsecured bridge loan facility (aggregate principal amount of $300 million) provided to Crystal 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 investment banking services to Safeway, Ultimate Parent, Blackhawk and their respective affiliates, including Cerberus, the Equity Investors and their respective affiliates and portfolio companies, for which the Investment Banking Division of Goldman Sachs may receive compensation. Affiliates of Goldman Sachs also may 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 Cerberus or the Equity Investors from time to time and may do so in the future.

(e) From page 85 of the Proxy:

Greenhill acted as financial advisor to the Board in connection with the Merger and 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 expenses incurred in connection with performing its services. In addition, the Company has agreed to indemnify Greenhill for certain liabilities and expenses that 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, 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



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other than (i) the amounts described above and (ii) services performed from December 2011 to October 2013 for Cerberus Real Estate Capital Management, LLC in connection with the formation and capitalization of Cerberus Institutional 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 placement fees and to reimburse certain of Greenhill’s out-of-pocket expenses. In addition, Greenhill performed services for SUPERVALU INC. in connection with 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 Greenhill’s out-of-pocket expenses.

103. These statements in the Proxy are rendered false and/or misleading by

omissions identified in paragraph 102, supra because they give shareholders a materia

incomplete and distorted picture of the sales process underlying the Proposed Transaction, t

various alternatives available to (and considered by) defendants other than the Propos

Transaction, and the efforts taken (or not taken) to ensure that no conflicts of interest tainted t

negotiation process, thus rendering it unfair to Plaintiff and the other members of the Class.

Disclosure Deficiencies Concerning the Valuation Analyses of Goldman Sachs and Greenhill

104. Goldman Sachs’ Selected Companies Analysis. The description of Go

Sachs’ Selected Companies Analysis on pages 77-79 of the Proxy is materially deficient because

I fails to disclose:

(a) the individually observed (i) Enterprise Value (“EV”) / Last Twelve Month

I (“LTM”) Earnings before Interest, Taxes, Depreciation, and Amortization (“EBITDA”); and (ii)

EV / One Year Forward EBITDA multiples for each of the selected comparable companies used

in the analysis;

(b) whether Goldman Sachs performed any benchmarking analysis for the

Company in relation to the selected comparable entities and, if so, the scope of such analysis;

I and

(c) the adjustments made, if any, for purposes of accounting for the value of

Safeway’s “other assets” in the “per share” indications of value derived as a result of the

I analysis.






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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 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 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 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 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 factors, procedures, assumptions, qualifications and limitations set forth therein, the Per Share Merger Consideration (excluding the Additional Cash Merger 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 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 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 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. The Board then approved and adopted the Merger Agreement and, subject to the terms of the Merger Agreement, recommended approval and adoption of the Merger Agreement by the Company’s stockholders and authorized the officers of Safeway to sign the Merger Agreement.

(b) From page 72 of the Proxy:

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 Share Merger Consideration (excluding the Additional Cash Merger 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.

The full text of the written opinion of Goldman Sachs, dated March 6, 2014, which sets forth assumptions made, procedures followed, matters considered and 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 information and assistance of the Board in connection with its consideration of the transactions contemplated by the Merger Agreement. The Goldman Sachs opinion 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 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 or as to the fairness or any other aspect of the distribution of such shares in the Blackhawk Distribution.


Selected Companies Analysis . Goldman Sachs reviewed and compared certain financial information, ratios and public market multiples for Safeway WholeCo and Safeway Ex-Blackhawk to the corresponding financial information, ratios and



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public market multiples for the following publicly traded corporations in the grocery retail industry (collectively referred to as the selected companies):

• The Kroger Co.;

• SUPERVALU INC.;

• Roundy’s Inc.;

• Ingles Markets Inc.;

• Harris Teeter Supermarkets, Inc.;

• Etablissements Delhaize Frères et Cie “Le Lion” (Delhaize Group); and

• Koninklijke Ahold NV (Ahold).

Although none of the selected companies is directly comparable to Safeway WholeCo or Safeway Ex-Blackhawk, the companies included were chosen because they are publicly traded companies with operations that for purposes of analysis may be considered similar to certain operations of Safeway WholeCo and Safeway Ex-Blackhawk.

Goldman Sachs calculated and compared various financial multiples and ratios based on information it obtained from estimates from IBES, research analyst reports and market information as of February 28, 2014 (with all estimates calendarized to December). With respect to each of (i) the selected companies, (ii) Safeway WholeCo and (iii) Safeway Ex-Blackhawk, Goldman Sachs calculated the following EBITDA multiples:

• enterprise value as a multiple of EBITDA for the last twelve-months ended December 31, 2009 to December 31, 2013;

• 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 and IBES; and

• enterprise value as a multiple of estimated EBITDA for the twelve-months ending December 31, 2014 and 2015.

The results of these analyses are summarized as follows:


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Based on its review of the foregoing calculations and applying its professional S.Itd Cmpni Sk.y Sfrw.

En"riw ' Wh1C Who1C E-BIL E-BiIh.wk nIIipl Range Median DjrbdI (Uidiqurbed UDdIrb

2013 EBITDA 12x-68x 7x 6-2x 49x Ox 46x 2014 EL EBITDA clx.

ô9x 5x 6.3x 4x 62 47 201EstEBITDA 50x-66x $$x 61x 4x 6lx 47x

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. 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.

En"rise VIueFLtM1iBLII)A Multiple

2009-2113 2013 2013

A,ernc (Dbkh. FPO) Pet-EIwkIPO

SatèwayWholeCo 5th 47x bx Safeway Ex.B]ackhawk NA NA Selected Companies 4x - 62x 42 47x- 7x Selected Companies Median 551 56x 6-1x Safeway WhaleCo as % of Mediin 92% 92%

LiIterprIr Value lODE Yr FDrward EBLTDA Multiple

2liU'J-I3 2013

Avra (Pr-DtcIthntIP(J} Pt-EIakbwIIPO Safeway WholeCo 51x 49x 53x SafcwayEx.B]ackhawk NA 51 Meted Companies Range 47x- 65x 42- 6h 4x- 7x Selected CopaniecMedian 55 57 2x Safeway WholeCo as % of Mediin 93% mo 85%

judgment, Goldman Sachs applied enterprise value to EBITDA multiples ranges of 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 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 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, 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. 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 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 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, respectively.


omissions identified in paragraph 105, supra because such omissions are essential to shareholders

ability to properly evaluate the analysis performed by Goldman Sachs. For example, without th

individually observed multiples, shareholders are unable to determine for themselves whether the

multiples applied to the financials for Safeway are representative of the selected comparable

companies that are most similar to Safeway. Likewise, the results of a proper benchmarking


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I analysis would allow shareholders to determine whether the selected comparable companies

actually appropriate for use in determining an implied value for Safeway shares.

107. Goldman Sachs’ Selected Transactions Analysis. The description of

Sachs’ Selected Transactions Analysis on pages 79-80 of the Proxy is materially deficient becau

it fails to disclose:

(a) the individually observed (i) EV / LTM EBITDA; (ii) EV / LTM EBITDA

(post 2007); and (iii) EV / LTM EBITDA (> $1 Billion EV) multiples for each of the

transactions selected for use in the analysis;

(b) whether Goldman Sachs performed any benchmarking analysis for the

I Company in relation to the target entities in the selected transactions used in the analysis and, if

so, the scope of such analysis; and

(c) the adjustments made, if any, for purposes of accounting for the value of

I Safeway’s “other assets” in the “per share” indications of value derived as a result of the

I analysis.




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 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 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 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 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 factors, procedures, assumptions, qualifications and limitations set forth therein, the Per Share Merger Consideration (excluding the Additional Cash Merger 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 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 Additional Cash Merger Consideration) to be received by the holders of shares of

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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 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 terms of the Merger Agreement, recommended approval and adoption of the Merger Agreement by the Company’s stockholders and authorized the officers of Safeway to sign the Merger Agreement.





Selected Transactions Analysis . Goldman Sachs analyzed certain publicly available information relating to the following selected transactions in the retail grocery industry since April 2002:

• TPG Capital, L.P.’s acquisition of Gelson’s Markets (Arden Group, Inc.) announced in December 2013;

• Albertson’s LLC’s acquisition of United Supermarkets, LLC announced in September 2013;

• The Kroger Co.’s acquisition of Harris Teeter Supermarkets, Inc. announced in July 2013;

• a Cerberus led consortium’s acquisition of SUPERVALU Inc. (21.2% stake) announced in January 2013;

• Ultimate Parent’s acquisition of SUPERVALU retail (New Albertson’s, Inc.) announced in January 2013;

• BI-LO, LLC’s acquisition of Winn-Dixie Stores, Inc. announced in December 2011;


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• CVC Capital Partners Limited and Leonard Green & Partners, L.P.’s acquisition of BJ’s Wholesale Club, Inc. announced in June 2011;

• The Great Atlantic & Pacific Tea Company’s acquisition of Pathmark Stores, Inc. announced in March 2007;

• Whole Foods Market, Inc.’s acquisition of Wild Oats Market, Inc. announced in February 2007;

• Apollo Global Management, LLC’s acquisition of Smart & Final Inc. announced in February 2007;

• Sun Capital Partners, Inc.’s acquisition of Marsh Supermarkets, Inc. announced in April 2006;

• SUPERVALU Inc.’s acquisition of Albertsons, Inc. (core food retailing) announced in January 2006;

• a Cerberus led consortium’s acquisition of Albertsons, Inc. (non-core food retailing) announced in January 2006;

• Lone Star Fund V (U.S.), L.P.’s acquisition of BI-LO, LLC/Bruno’s announced in December 2004;

• Albertson’s, Inc.’s acquisition of Shaw’s Supermarkets, Inc. announced in March 2004; and

• Willis Stein & Partners L.P.’s acquisition of Roundy’s Supermarkets, Inc. announced in April 2002.

For each of the selected transactions, Goldman Sachs calculated and compared the 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 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. Grocery, the companies that participated in the selected transactions are companies with operations that, for the purposes of analysis, may be considered similar to certain of U.S. Grocery’s results and product profile.

The following table presents the results of this analysis: Selectad Tr.rn.ctious

Ettrprit Vilut as a Mulbpk of., Roulte Medan LTh1 EBITDA 3-9x-14-Ox 67x LTM EB1TDA (Post OO7 LTM EBITDA (> S 1 Billion Enterprise Value) 64x

Based on its review of the foregoing calculations and applying its professional 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-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 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 the trading price of shares of Blackhawk Class A common stock on February 28,



2014, this resulted in illustrative values per share of Company common stock for U.S. Grocery, rounded to the nearest five cents, ranging from $28.05 to $33.90.

109. As with the omissions concerning Goldman Sachs’ Selected Companies A

these statements are rendered false and/or misleading by the omissions identified in par

108, supra as the individually observed EV multiples are integral to shareholders’ assessment

whether the range of multiples Goldman Sachs selected and applied to the Company

appropriate. Likewise, the benchmarking information omitted from the Proxy is material

shareholders’ ability to evaluate whether Goldman Sachs selected multiples that are appropri

given the growth and profitability profile of the Company. Without understanding whether su

an analysis was prepared in this case, and if so its results, it is difficult to understand w

Goldman Sachs selected the EV multiples it used in the analysis.

110. Goldman Sachs’ Present Value of Future Share Price Analysis. The descripti

of Goldman Sachs’ Present Value of Future Share Price Analysis on pages 80-81 of the Proxy

materially deficient because it fails to disclose:

(a) the projected net debt figures for each of Safeway Ex-Blackhawk and U.S.

Grocery for each of fiscal years 2013-2015;

(b) the projected diluted shares outstanding for the Company for each of fiscal

years 2013-2015;

(c) the assumed annual dividends for Safeway for each of fiscal years 2013-

2015;

(d) the specific inputs and assumptions used to derive the 9.1% cost of equity

figure used by Goldman Sachs in connection with its analysis for both Safeway Ex-Blackhawk

I and U.S. Grocery; and

(e) the rationale for limiting this analysis through 2015 despite having financial

projections through 2018 made available.

111. The omission of this information renders the following statements in the Proxy

false and/or materially misleading in contravention of the Exchange Act:


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Illustrative Present Value of Future Share Price Analysis . Goldman Sachs 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



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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 financial information from the Projections for (i) Safeway Ex-Blackhawk and (ii) U.S. Grocery.

In calculating the implied present value of future share price per share of Company common stock for Safeway Ex-Blackhawk, Goldman Sachs first calculated the implied enterprise value of Safeway Ex-Blackhawk for each of the calendar years ending 2013 to 2015 by multiplying the estimated one-year forward EBITDA of 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 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 calendar years ending 2013 to 2015, respectively. Goldman Sachs then divided these implied equity values by the respective calendar year end diluted outstanding 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, respectively. Goldman Sachs then added the cumulative dividends per share of Company common stock payable to Safeway stockholders 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 December 31, 2013 using 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 nearest five cents, of $24.10 to $36.65 per share of Company common stock.

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 enterprise value of U.S. Grocery for each of the calendar years ending 2013 to 2015 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 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 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 outstanding shares of Company common stock, per the Projections, to calculate implied future equity values per share of Company common stock for calendar years 2013 to 2015, respectively. Goldman Sachs then added the cumulative dividends per share of Company common stock payable to Safeway stockholders 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 December 31, 2013 using a discount rate of 9.1%, reflecting an estimate of U.S. Grocery’s cost of equity.

This analysis resulted in a range of implied present values, rounded to the nearest five cents, of $21.85 to $33.40 per share of Company common stock.


omissions identified in paragraph 111, supra because they fail to provide shareholders with

information required for them to fully understand the scope of the analysis and, consequently

evaluate whether the results of the analysis are an appropriate reflection of the Company’s



value. Where wide ranging debt figures, dividend payments, and changes in the cost of equity

have material impacts on the resulting implied value of the Company, it is important

shareholders be given the information necessary to determine whether these inputs are appropr

That is not the case here, however, as the Proxy fails to include such material information.

113. Goldman Sachs’ Discounted Cash Flow (“DCF”) Analysis. The description

I Goldman Sachs’ DCF Analysis on page 81 of the Proxy is materially deficient because it fails

I disclose:

(a) whether the “non-cash adjustments as taken from the statement of cash

I flows” used by Goldman Sachs in calculating U.S. Grocery’s estimated unlevered free cash

flows includes adjustments for stock-based compensation;

(b) the amount of the adjustment made for expected cash taxes stemming from

the Blackhawk Distribution for purposes of this analysis;

(c) the inputs and assumptions underlying Goldman Sachs’ use of a 7.5% to

8.5% discount rate range in connection with this analysis; and

(d) whether Goldman Sachs incorporated Safeway’s Net Operating Losses

I (“NOLs”) into its analysis.




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 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 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 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 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 factors, procedures, assumptions, qualifications and limitations set forth therein, the Per Share Merger Consideration (excluding the Additional Cash Merger 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

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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 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 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. The Board then approved and adopted the Merger Agreement and, subject to the terms of the Merger Agreement, recommended approval and adoption of the Merger Agreement by the Company’s stockholders and authorized the officers of Safeway to sign the Merger Agreement.




(c) From page 81 of the Proxy:

Illustrative Discounted Cash Flow Analysis . Goldman Sachs performed an illustrative discounted cash flow analysis to determine the present value per share 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%, 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 (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 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 cash flows included in the Projections. U.S. Grocery’s estimated unlevered free 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. 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, respectively. The illustrative terminal values were derived by applying perpetuity growth rates ranging from (1.0%) to 1.0% (which implied exit LTM EBITDA 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



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estimated unlevered free cash flow for the years 2014 through 2018 to the present 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 dividing this range of equity values by the total number of fully diluted outstanding shares of Company common stock, Goldman Sachs derived illustrative present 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.


omissions identified in paragraph 114, supra for a variety of reasons. First, there are a number o

differing line items that can be included in the calculation of free cash flows and, depending on

what definition is used, can impact the valuation resulting from a DCF analysis. Second, whethe

the Company recognizes stock-based compensation in its estimate of after-tax free cash flows –

thus treating stock-based compensation as a non-cash expense as opposed to a cash expense –

could have a meaningful impact on the conclusions presented in Goldman Sachs’ DCF Analysis

Third, it is well established that (i) the calculation of a discount rate requires the application of a

number of objective inputs and assumptions; and (ii) the ultimate discount rate selected often ha

the single largest impact on a resulting DCF valuation. Accordingly, it is important that Safeway

shareholders be provided insight into the reasonableness of Goldman Sachs’ discretionary use o

the inputs and assumptions used to compute the selected discount rate range.

116. Goldman Sachs’ Leveraged Buyout Analysis. The description of Goldman Sachs

Leveraged Buyout Analysis on page 81 of the Proxy is materially deficient because it fails

disclose (i) whether stock-based compensation expenses were included in the non-ca

adjustments made to determine free cash flows for debt service for purposes of this analysis; a

(ii) the assumed cost of debt used by Goldman Sachs.




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 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 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 occurred with Cerberus, Albertson’s LLC and Schulte Roth and that the terms of



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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 factors, procedures, assumptions, qualifications and limitations set forth therein, the Per Share Merger Consideration (excluding the Additional Cash Merger 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 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 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 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. The Board then approved and adopted the Merger Agreement and, subject to the terms of the Merger Agreement, recommended approval and adoption of the Merger Agreement by the Company’s stockholders and authorized the officers of Safeway to sign the Merger Agreement.





Illustrative Leveraged Buyout Analysis . Goldman Sachs performed an illustrative leveraged buyout analysis to determine the range of prices per share of Company common stock a financial buyer may be willing to pay to purchase U.S. Grocery. For the 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 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 buyer of 13% to 21%.

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



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depreciation and amortization, minus estimated increases in net working capital, minus 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 above, Goldman Sachs calculated illustrative purchase prices per share of Company common stock ranging from $27.00 to $29.00.


omissions identified in paragraph 117, supra because the omitted information is integral to a

understanding of how this analysis was performed, whether it was performed accurately

honestly and, consequently, whether the analysis provides an accurate understanding of

Company’s value or was potentially manipulated to make the consideration being offered in

Proposed Transaction appear more fair than it actually is. This is particularly true here, where f

cash flows and the assumed cost of debt have a material impact on the resulting value derived

the Company as a result of such an analysis.

119. Goldman Sachs’ Work Generally. The Proxy further fails to disclose the followi

additional information pertaining to Goldman Sachs’ overall valuation of the Company:

whether Goldman Sachs conducted any analysis designed to evaluate the reasonableness of

$3.44 per share value Safeway attributed to the Assumed CVR Cash Proceeds, and Goldm

Sachs used in conducting its analyses; and (ii) what analysis Goldman Sachs used to determine

$0.71 per share value of the tax savings to Blackhawk associated with the step-up in tax b

resulting from the Blackhawk Distribution.




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 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 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 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 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 factors, procedures, assumptions, qualifications and limitations set forth therein, the Per Share Merger Consideration (excluding the Additional Cash Merger



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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 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 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 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. The Board then approved and adopted the Merger Agreement and, subject to the terms of the Merger Agreement, recommended approval and adoption of the Merger Agreement by the Company’s stockholders and authorized the officers of Safeway to sign the Merger Agreement.




121. Greenhill’s Selected Comparable Company Analysis. The description

Greenhill’s Selected Comparable Companies Analysis on pages 86-87 of the Proxy is

deficient because it fails to disclose whether a benchmarking analysis was conducted for

Company in relation to the comparable companies selected for use in the analysis by Greenhill.




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 Company A was not likely to be in a position to submit a more complete proposal



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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 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 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 factors, procedures, assumptions, qualifications and limitations set forth therein, the Per Share Merger Consideration (excluding the Additional Cash Merger 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 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 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 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. The Board then approved and adopted the Merger Agreement and, subject to the terms of the Merger Agreement, recommended approval and adoption of the Merger Agreement by the Company’s stockholders and authorized the officers of Safeway to sign the Merger Agreement.


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 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, 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 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 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.


Selected Comparable Company Analysis

Greenhill performed a comparable company analysis of the U.S. Grocery operations of the Company, based on factors such as then-current market values, capital structure and operating statistics of other publicly traded companies believed to be generally relevant, in order to derive trading multiples for these 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 U.S. Grocery operations of the Company.

In this analysis, Greenhill reviewed, to the extent publicly available, selected financial data for the publicly traded companies set forth below (together, the “Greenhill peer group”).



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1014 LBA Ig 3x KkeM1dNV

Dlhz Group SA lx lx SUPER.' LLr INC. Ox hm.1 M ,: m1s brd lx NA Spaa Jn: 1. 25 ft Rrrndvs ba,: 5 S. lx

Idn Greenhill examined these companies because they are publicly traded companies in 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 earnings rather than actual 2013 results because current market valuations are typically a reflection of expected future earnings rather than past performance.

Greenhill calculated and compared various financial multiples and ratios based on information it obtained from filings with the SEC, Capital IQ, FactSet, IBES, and 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 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, based on its experience valuing companies in the retail and grocery sectors, and applied such ranges of multiples to the corresponding projections for the 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 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 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 $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 ranges were $19.45 to $23.42 inclusive of those valuations based on estimated 2014 earnings and $32.99 to $40.86 inclusive of those valuations based on estimated 2014 EBITDA.

123. Again, a benchmarking analysis is essential when comparing entities for

purposes as the selection of multiples when conducting a market valuation analysis is onl

worthwhile if the multiples are chosen from entities with growth and profitability profiles simila

to the company being valued. Accordingly, the aforementioned statements are rendered false an

misleading by the omissions identified in paragraph 122, supra as they prevent shareholders from

truly evaluating the merits of the Greenhill Selected Comparable Companies Analysis as a whole.

124. Greenhill’s DCF Analysis. The description of Greenhill’s DCF Analysis on

87 of the Proxy is materially deficient because it fails to disclose:

(a) the EBITDA multiples that Greenhill applied to Safeway’s estimated 2018

EBITDA to determine the implied Company terminal value used in the analysis;

(b) whether changes in net working capital were considered as part of

Greenhill’s calculation of unlevered free cash flow for purposes of this analysis;



(c) the inputs and assumptions underlying Greenhill’s calculation of the 7.0% to

9.0% discount rate range used in this analysis; and

(d) whether Greenhill incorporated Safeway’s NOLs into its analysis at all.







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Discounted Cash Flow Analysis

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 equity values per share of Company common stock for the Company’s U.S. Grocery operations using financial forecasts and projections prepared by the Company’s management and provided to Greenhill, for 2014 to 2018. Greenhill 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, 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 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 applying terminal EBITDA multiples to the estimate of 2018 EBITDA. Greenhill calculated standalone, after-tax unlevered free cash flow for such 2014 period and 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 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. 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 $759 million, $707 million, $757 million and $811 million, respectively. The standalone, after-tax unlevered free cash flow for each of these periods and 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 peer group’s weighted average cost of capital. Greenhill’s analysis also assumed 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 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 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 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.

126. As discussed previously, DCF Analyses are extremely sensitive to the inputs

particularly the discount rate. Thus, the omissions identified in paragraph 125, supra render

above statements in the Proxy false and/or misleading as shareholders are left unable to evalu

the appropriateness of the assumptions and inputs used by Greenhill to derive the free cash fl

figures for the Company as well as the discount rates that were applied to the free cash fl

calculations in deriving Safeway’s implied per share value. As DCF Analyses are one of the m

common and widely respected basis of valuing a going concern this information is material


28


shareholders determination of what weight, if any, to give to Greenhill’s fairness

when deciding whether to vote in favor of the Proposed Transaction.

127. Greenhill’s Precedent Transaction Analysis. The description of Greenhill’

I Precedent Transaction Analysis on pages 87-88 of the Proxy is materially deficient because it

to disclose:

(a) whether a benchmarking analysis comparing Safeway to the companies sold

in the selected precedent transactions selected for use by Greenhill in this analysis and, if so, the

scope of such analysis;

(b) the basis for Greenhill’s determination that the transactions involving Harris

Teeter, Nash Finch, and Winn-Dixie were the most applicable to the Proposed Transaction.





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Asqumr TPG Capital, LP. Spartan Stomq, Inc Kroger Co Sobeys Inc- BI-LO LLC

Tra bpIJ rrmj TVfPJlITt k 390 99x 776 69x

2,658 6.7x 5,690 1O.lx

642 43x (.9x


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Precedent Transaction Analysis

Greenhill performed an analysis of selected business combinations consisting of transactions that Greenhill, based on its experience with merger and acquisition transactions, deemed relevant. Greenhill’s analysis was based on publicly available information regarding such transactions and the Capital IQ and FactSet databases. The selected transactions were not intended to be representative of the entire range 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 announced within the last three years, based on the professional judgment and experience of its investment bankers, taking into account the comparability, in terms of size, markets and operations, of the acquired businesses to the U.S. Grocery operations of the Company.

Announced Dt T--Wt

1220.2013 Arden Group Inc072212013 Nash Finch Co O79l2O13 Harris Teeter Supemiarkels, Ioc 06.12/2013 Cinda Safeway Ltd- 12/1912011 Wiiin-Dixie Star Inc. Median

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 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 deriving a range of multiples deemed most relevant for its analysis, Greenhill evaluated the respective comparability of these acquired businesses to the U.S. Grocery operations of the Company. Based on the comparability of the target to the 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 grocery sectors, Greenhill deemed the acquisitions of (i) Harris Teeter Supermarkets, Inc. by Kroger Co., (ii) Nash Finch Co. by Spartan Stores, Inc. and (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 analysis.



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On this basis, Greenhill arrived at ranges of implied enterprise values for the U.S. 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 this analysis are summarized below.

Low FI(gb 21:113 2013

FBITDA of US Grocery Op&ations SI 318im sixiiimi EV i E.BITDA Multiple 6.0x 7.0 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 Fully Diluted Shares lctiidng 236 mm 236 mm Implied Value per Shire of US Gmcer' Operations $2939 $3. 14

Adding in the Blackhawk valuation and the Casa Ley CVR and PDC CVR valuations described below, the range was $35.88 to $43.48 per share of Company common stock.

129. Given the importance of conducting a benchmarking analysis when performing any

market valuation such as this, the failure to disclose whether (and to what extent) any

benchmarking took place renders the aforementioned statements in the Proxy false and/or

misleading. Indeed, without understanding the growth and profitability profiles of the acquired

entities in the selected comparable transactions as compared to the same profiles for Safeway

Company shareholders are unable to assess the strength of Greenhill’s analysis and, consequently

whether it should be afforded considerable deference in their determination of whether the

Proposed Transaction should be approved.

130. Greenhill’s Leveraged Buyout Analysis. The description of Greenhill’s

Buyout Analysis on pages 88-89 of the Proxy is materially deficient because it fails to disclose

specific assumptions made by Greenhill with regard to transaction leverage, fees and expen

and financing terms. The omission of this information renders the following statements in

Proxy false and/or materially misleading in contravention of the Exchange Act:


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 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 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 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 then delivered its oral opinion to the Board, which opinion was confirmed in



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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 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 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 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 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. The Board then approved and adopted the Merger Agreement and, subject to the terms of the Merger Agreement, recommended approval and adoption of the Merger Agreement by the Company’s stockholders and authorized the officers of Safeway to sign the Merger Agreement.




Leveraged Buyout Analysis

Greenhill performed an illustrative leveraged buyout analysis to determine the 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 analysis, Greenhill made several assumptions about the characteristics of such a transaction based on precedent transactions analyses, including such factors as transaction leverage, fees and expenses, financing terms and exit EBITDA multiples. Starting with the February Projections, Greenhill calculated U.S. 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, minus estimated increases in net working capital, minus net cash from investment 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 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 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 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



$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.


aforementioned omissions because the omitted information is integral to a full understanding

how this analysis was performed, whether it was performed honestly and, consequently, whet

the analysis provides an accurate understanding of the Company’s value. This is particularly t

here, where the omitted assumptions underlying certain key inputs of the analysis (i.e. financi

terms and overall transaction leverage) are not disclosed.

132. Greenhill’s Blackhawk Valuation Analysis. The description of Greenhill’

Blackhawk Valuation Analysis on page 89 of the Proxy is materially deficient because it fails

disclose (i) the specific inputs and assumptions used to derive the 10.1% discount rate used 1

Greenhill in this analysis; and (ii) how the additional $0.76 per share resulting from the step-up

tax basis of Blackhawk shares came to be. The omission of this information renders the followin

statements in the Proxy false and/or materially misleading in contravention of the Exchange Act:


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 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 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 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 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 factors, procedures, assumptions, qualifications and limitations set forth therein, the Per Share Merger Consideration (excluding the Additional Cash Merger 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 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 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 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. The Board then approved and adopted the Merger Agreement and, subject to the terms of the Merger Agreement, recommended approval and adoption of the

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Merger Agreement by the Company’s stockholders and authorized the officers of Safeway to sign the Merger Agreement.




Blackhawk Valuation

Greenhill performed an analysis to estimate the value to the Company’s 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 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 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 holders of shares of Company common stock of the value of a step-up in tax basis 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 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 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 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 additional value per share of Company common stock for a potential total of $4.70 per share of Company common stock.

133. With changes in discount rates having such a significant impact on

valuation ranges, the inputs and assumptions underlying the calculation of such rates as used i

any valuation analysis comprise essential information to those individuals attempting t

understand how such an analysis was performed and, consequently, whether it was performe

accurately. Accordingly, the omissions from the Proxy as identified in paragraph 132, supr

render the preceding statements in the Proxy false and/or misleading.


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134. Greenhill’s CVR Analysis. The description of Greenhill’s CVR Analysis on

89 of the Proxy is materially deficient because it fails to disclose:

(a) the implied terminal EBITDA multiple for Casa Ley Interest based on the

I perpetuity growth rate of 2.0% used in this analysis;

(b) the specific inputs and assumptions used to derive the 9.6% discount rate

I used in connection with the valuation of the Casa Ley Interest;

(c) the estimated stabilized net operating income of PDC used by Greenhill;

(d) the specific inputs and assumptions used to derive the 6.5% to 7.4%

I capitalization rate range used by Greenhill;

(e) the estimated impact of failing to sell the PDC assets before the sale

I deadline date contained in the CVR Agreement on Greenhill’s analysis;

(f) the separate per share values of the Casa Ley CVR based on (i) an

I immediate sale and (ii) a sale in four years;

(g) the specific per share value of the PDC CVR according to the Greenhill

analysis.




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 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 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 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 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 factors, procedures, assumptions, qualifications and limitations set forth therein, the Per Share Merger Consideration (excluding the Additional Cash Merger 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 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



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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 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. The Board then approved and adopted the Merger Agreement and, subject to the terms of the Merger Agreement, recommended approval and adoption of the Merger Agreement by the Company’s stockholders and authorized the officers of Safeway to sign the Merger Agreement.




CVR Analysis

Greenhill performed an analysis to calculate the value of the Casa Ley CVR. The 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 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 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 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%, 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. 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 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 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 arrive at the present value on March 4, 2014 of the potential sale of Casa Ley on March 4, 2018.

Greenhill performed an analysis to calculate the value of the PDC CVR. This valuation was calculated based upon the estimated stabilized net operating income 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 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



construction projects and sales of the PDC assets and taxes at a rate of 39% (using 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 before the sale deadline in the PDC CVR Agreement would result in a reduction of the value of the assets.

Greenhill’s analysis resulted in an estimated aggregate value of the Casa Ley CVR and the PDC CVR to be between $2.56 and $3.64 per share of Company common stock.


omissions identified in paragraph 134, supra because each of the identified omissions

directly to the valuation figure derived as a result of the analysis and are thus essential

shareholders’ understanding of how the analysis was performed and whether it was perform

accurately. Consequently, shareholders need this information to determine what weight, if any,

give this analysis (and the Greenhill fairness opinion generally) in deciding whether to vote

favor of the Proposed Transaction.

Disclosure Deficiencies Concerning the Anticipated Future Performance of Safeway

137. According to pages 90-92 of the Proxy, Goldman Sachs and Greenhill were bo

provided with, and relied significantly upon, certain the financial forecasts prepared by Safew

management for fiscal years 2013-2018 in preparing their respective financial valuation analys

The Proxy does not, however, disclose certain aspects of these projections that are material

Company shareholders’ decision whether to approve the Proposed Transaction, including:

(a) With respect to the January Projections contained on page 93 of the Proxy,

the following line items for Safeway WholeCo, Safeway Ex-Blackhawk, and U.S. Grocery for

fiscal years 2013-2018:

(i) Revenue (excluding Safeway WholeCo);

(ii) Earnings Before Interest and Taxes (“EBIT”);

(iii) Dividends from the Casa Ley Interest (excluding U.S. Grocery);

(iv) Incremental rent expense;

(v) Taxes (or tax rate);

(vi) Capital expenditures;

(vii) Changes in net working capital;

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(viii) Stock-based compensation expense;

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(ix) Other non-cash adjustments.

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(b) With respect to the February Projections contained on page 94 of the Proxy,

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the following line items for Safeway WholeCo, Safeway Ex-Blackhawk, and U.S. Grocery for

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fiscal years 2013-2018:

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(i) EBIT;

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(ii) Rent expense payable by Safeway to PDC;

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(iii) Incremental rent expense;

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(iv) Taxes (or tax rate);

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(v) Capital expenditures;

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(vi) Changes in net working capital;

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(vii) Stock-based compensation expense;

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(viii) Other non-cash adjustments.

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(c) With respect to the Casa Ley February Projections, the following line items

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for fiscal years 2013-2018 for Casa Ley:

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(i) Revenue;

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(ii) EBITDA;

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(iii) EBIT;

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(iv) Taxes (or tax rate);

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(v) Capital expenditures;

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(vi) Changes in net working capital;

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(vii) Stock-based compensation expense.

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(d) With respect to the financial forecasts generally:

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(i) Whether Greenhill’s 2014 UFCF included any adjustment for th

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expected cash taxes resulting from the Blackhawk Distribution; and

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(ii) the line items excluded for purposes of normalizing the portion o

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the January Projections relating to fiscal year 2013.


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(a) From pages 90-92 of the Proxy:

Prospective Financial Information

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 certain of their affiliates, as well as Goldman Sachs, in its capacity as financial advisor to the Board, certain prospective financial information concerning the Company, including projected revenues, EBITDA, net income and free cash flow (the “January Projections”). In connection with the respective financial analyses performed by Goldman Sachs and Greenhill, each in their capacities as financial advisors to the Board, in February 2014, the Company provided Goldman Sachs and Greenhill certain updated prospective financial information concerning the Company, including projected revenues, EBITDA, net income and free cash flow, which reflected certain changes from the January Projections based on actual 2013 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 to the January Projections (the “February Projections” and, together with the January Projections, the “Projections”).

The Company’s management does not in the ordinary course of business prepare 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 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 with delivering their respective written financial opinions to the Board.

The Projections do not take into account any circumstances or events occurring after the date they were prepared, including the transactions contemplated by the Merger Agreement, including the Merger. Further, the Projections do not take into account the effect of any failure of the Merger to occur and should not be viewed as accurate or continuing in that context.

The Projections reflect numerous estimates and assumptions made by the Company with respect to industry performance, general business, economic, regulatory, market and financial conditions and other future events, as well as matters specific 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 many respects and thus are susceptible to multiple interpretations and periodic revisions based on actual experience and business developments. As such, the Projections constitute forward-looking information and are subject to risks and uncertainties that could cause actual results to differ materially from the results forecasted in the Projections, including, but not limited to, the Company’s performance, industry performance, general business and economic conditions, customer requirements, competition, adverse changes in applicable laws, regulations or rules, and the various risks set forth in the Company’s reports filed with the SEC. There can be no assurance that the Projections will be realized or 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

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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 necessarily involve judgments with respect to, among other things, future economic, competitive and regulatory conditions and financial market conditions, 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 business decisions that are subject to change. The Projections cannot, therefore, be considered a guarantee of future operating results, and this information should not be relied on as such. The inclusion of the Projections should not be regarded as an 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 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 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 become inaccurate.

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 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 December 28, 2013.

The February Projections, which the Company made available to the Financial Advisors in February 2014, were estimated based on, among other things, the 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 Report on Form 10-K, filed with the SEC on February 26, 2014. In addition, the February Projections were updated to reflect that certain terms of the transaction proposed by Albertsons had changed since the December Proposal, including the introduction of the Casa Ley CVR and the PDC CVR. Additionally, the February Projections were, at Goldman Sachs’ request, modified to reflect certain non-operational changes to the January Projections, including by removing interest income and equity incentive compensation expense from the calculation of 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 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 payable by the Company to PDC pursuant to the PDC Leases.

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 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 respect to the shares of Company common stock.

The inclusion of the summary of the Projections herein should not be deemed an 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 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 uncertainties associated with such long range forecasts. The Projections should be evaluated, if at all, in conjunction with the historical financial statements and other



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information regarding the Company contained in the Company’s public filings with 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 Projections.

Neither the Company’s independent auditors, nor any other independent accountants, have compiled, examined, or performed any procedures with respect 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, and assume no responsibility for, and disclaim any association with, the Projections.

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 substitute for financial measures calculated in accordance with, GAAP and may be different from non-GAAP financial measures used by other companies. 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 a GAAP presentation. Accordingly, these non-GAAP financial measures should be considered together with, and not as an alternative to, GAAP basis financial measures.


Summary of the Projections

January Projections 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 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 EBITDA(3) S 1,53R(7) S 1,53 S 1,600 5 1,65 S 1,716 S 1,913 (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 (i) 3vE-BlkdUdUS € (6) US ddCLv (') . m o e-im () IA1ud

rom 1513.14 Nd I,, ,mc

lud o C±buc.

February Projections (do mo)

S.f.y WhkC*(2) 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

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 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 7 7 S 129) S 252 S 316 S 3S S 46 S 556

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 . 1 EBITILki dq upn dt dSvE-B1ikth q thdg fCLv

A6n11vEBrrDAfUsG djrdfrhh fth rp.... I Fchrowi dhflowfrom opero exc1u& vqmo) 5) & v.CLvdPDCb () 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..



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139. These statements in the Proxy are rendered false and/or misleading by the

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omissions identified in paragraph 138, supra as this information is integral to shareholders’

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evaluation of the consideration being offered in the Proposed Transaction. Indeed, these financia

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projections provide a sneak peek into Safeway’s expected future performance and, consequently

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its value as a standalone entity. More importantly, however, this expected performance is more

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reliable than similar forecasts prepared by third-party analysts and others as it comes from

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corporate insiders with their hands on the pulse of the Company. Accordingly, it is no surprise

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that financial projections are among the most highly sought after disclosures by shareholders in

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the context of corporate transactions such as this. Additionally, these projections form the

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backbone of the DCF Analyses prepared by Goldman Sachs and Greenhill.

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140. Ultimately, Safeway shareholders have one of two choices: (i) accept the Proposed

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Consideration; or (ii) seek appraisal for the true value of their Company shares. With

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understanding the Company’s income/cash flow characteristics as a standalone entity (deri

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through disclosure of reliable financial projections), Safeway shareholders are incapable

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making an independent determination as to which of these two alternative options to pursue.

16 * * * * *

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141. Defendants’ failure to provide Safeway shareholders with the foregoing materi

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information constitutes a violation of sections 14(a) and 20(a) of the Exchange Act, and SEC Ru

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14a-9 promulgated thereunder. The Individual Defendants were aware of their duty to disclo

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this information and acted negligently (if not deliberately) in failing to include this information

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the Proxy. Absent disclosure of this material information prior to the shareholder vote on

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Proposed Transaction, Plaintiff and the other members of the Class will be unable to make a fu

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informed decision whether to vote in favor of the Proposed Transaction and are thus

24 with irreparable harm warranting the injunctive relief sought herein.

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COUNT I Violations of Section 14(a) of the Exchange Act and

SEC Rule 14a-9 Promulgated Thereunder (On Behalf of Plaintiff and the Proposed Class and

Against the Individual Members of the Board Defendants)

142. Plaintiff repeats and realleges each and every allegation contained above as if

I set forth herein.

143. The Company and its Board disseminated the false and materially misleadi

Proxy specified above, which failed to disclose material facts necessary in order to make the

statements made, in light of the circumstances under which they were made, not misleading.

144. The Proxy was prepared, reviewed, and/or disseminated by the Board and Safeway

It misrepresented and/or omitted material facts, including material information about the u

and conflicted sales process, the inadequate consideration offered in the Proposed Transaction,

I the actual intrinsic value of the Company.

145. The Company and its Board were at least negligent in filing the Proxy with

false and materially misleading statements included therein.

146. The omissions and false and misleading statements in the Proxy are material in

a reasonable shareholder would consider them important in deciding how to vote on the Propo

Transaction. In addition, a reasonable investor would view full and accurate disclosures

significantly altering the “total mix” of information made available in the Proxy and in

information reasonably available to shareholders.

147. By reason of the foregoing, Safeway and the members of its Board have violate

section 14(a) of the Exchange Act and SEC Rule 14a-9(a) promulgated thereunder.

148. Because of the false and misleading statements in the Proxy, Plaintiff is threatene

with irreparable harm, rendering money damages inadequate. Therefore, injunctive relief i

appropriate to ensure the Exchange Act violations are corrected.

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COUNT II Violations of Section 20(a) of the Exchange Act

(On Behalf of Plaintiff and the Proposed Class and Against the Individual Members of the Board Defendants)

149. Plaintiff repeats and realleges each and every allegation contained above as if

I set forth herein.

150. The Individual Defendants acted as controlling persons of Safeway within

meaning of section 20(a) of the Exchange Act as alleged herein. By virtue of their positions a

officers and/or directors of Safeway, participation in and/or awareness of the Company’

operations, and/or intimate knowledge of the false and misleading statements contained in th

Proxy, they had the power to influence and control and did influence and control, directly o

indirectly, the decision-making of the Company, including the content and dissemination of th

various statements in the Proxy which Plaintiff contends are false and misleading.

151. Each of the Individual Defendants was provided with or had unlimited access t

copies of the Proxy and the other statements alleged by Plaintiff to be misleading prior to an

shortly after these statements were issued and had the ability to prevent the issuance of

I statements or cause the statements to be corrected.

152. In particular, each of the Individual Defendants had direct and supervi

I involvement in the day-to-day operations of the Company and, therefore, is presumed to have

the power to control or influence the particular transactions giving rise to the securities viol

as alleged herein, and exercised the same. The Proxy at issue contains the unan

recommendation of each of the Board members to approve the Proposed Transaction. They

thus, directly involved in the making of the Proxy.

153. In addition, as the Proxy sets forth at length, and as described herein, the

members were each involved in negotiating, reviewing, and approving the Proposed Transacti

The Proxy purports to describe the various issues and information that they reviewed

considered, descriptions of which had input from the directors.

154. As set forth above, the Individual Defendants had the ability to exercise con

over, and did control, a person or persons who have each violated section 14(a) of the Excha

Act and SEC Rule 14a-9 promulgated thereunder, by their acts and omissions as alleged herein.



155. By virtue of these facts, the Board members have violated, and are liable to

Plaintiff and the other members of the Class pursuant to, section 20(a) of the Exchange Act.

COUNT III For Breach of Fiduciary Duties

(On Behalf of Plaintiff and the Proposed Class and Against the Individual Members of the Board Defendants)

156. Plaintiff incorporates by reference and realleges each and every allegation

contained above as though fully set forth herein.

157. The Individual Defendants have violated the fiduciary duties of good faith, loyalty

I and independence owed to the public shareholders of Safeway and have acted to put their

interests ahead of the interests of Safeway shareholders.

158. By the acts, transactions, and course of conduct alleged herein,

individually and acting as a part of a common plan, are attempting to unfairly deprive plaintiff

other members of the Class of the true value inherent in and arising from Safeway.

159. The Individual Defendants have violated their fiduciary duties by agreeing to

Proposed Transaction without regard to the effect of the Proposed Transaction on Safe

I shareholders.

160. As demonstrated by the allegations above, the Individual Defendants failed

demonstrate the good faith required, and breached their duties of loyalty and independence ow

to the shareholders of Safeway because, among other reasons:

(a) they failed to take steps to maximize the value of Safeway to its pu

shareholders;

(b) they failed to properly value Safeway and its various assets and operations; and

(c) they ignored or did not protect against the numerous conflicts of interest resu

from the directors’ own interrelationships or connection with the Propo

Transaction.

161. Because the Individual Defendants dominate and control the business and

affairs of Safeway, and are in possession of or have access to private corporate

28 11 concerning Safeway’s assets, business, and future prospects, there exists an imbalance

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disparity of knowledge and economic power between them and the public shareholders

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Safeway which makes it inherently unfair for them to pursue and recommend any propos

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transaction wherein they will reap disproportionate benefits to the exclusion of maximizi

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I shareholder value.

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162. By reason of the foregoing acts, practices, and course of conduct, the Indiv

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Defendants have failed to exercise ordinary care and diligence in the exercise of their fidu

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obligations toward plaintiff and the other members of the Class.

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163. The Individual Defendants are engaging in self-dealing, are not acting in good

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toward plaintiff and the other members of the Class, and have breached and are breaching

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fiduciary duties to the members of the Class.

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164. As a result of the Individual Defendants’ unlawful actions, plaintiff and the

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members of the Class will be irreparably harmed in that they will not receive their fair portion

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the value of Safeway’s assets and operations. Unless the Proposed Transaction is enjoined by t

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Court, the Individual Defendants will continue to breach their fiduciary duties owed to plaint

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and the members of the Class, will not engage in arm’s-length negotiations on the Propos

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Transaction terms, and may consummate the Proposed Transaction, all to the irreparable harm

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I the members of the Class.

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165. Plaintiff and the members of the Class have no adequate remedy at law.

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through the exercise of this Court’s equitable powers can plaintiff and the Class be fully pr

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from the immediate and irreparable injury which defendants’ actions threaten to inflict.

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COUNT IV

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Claim for Aiding and Abetting Breach of Fiduciary Duties

23 (On Behalf of Plaintiff and the Proposed Class and Against Safeway)

24 166. Plaintiff incorporates by reference and realleges each and every all

25 contained above as though fully set forth herein.

26 167. The Individual Defendants owed to plaintiff and the members of the Class

27 fiduciary duties as fully set out herein.


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168. By committing the acts alleged herein, the Individual Defendants breached th

fiduciary duties owed to plaintiff and the members of the Class.

169. Safeway colluded in or aided and abetted the Individual Defendants’ breaches

fiduciary duties, and was an active and knowing participant in the Individual Defendants’ brea

of fiduciary duties owed to plaintiff and the members of the Class.

170. Plaintiff and the members of the Class shall be irreparably injured as a direct

I proximate result of the aforementioned acts.

COUNT V Claim for Aiding and Abetting Breach of Fiduciary Duties

(On Behalf of Plaintiff and the Proposed Class and Against AB Acquisition, Albertson’s Holdings, Albertson’s LLC, Merger Sub, and Cerberus Capital)

171. Plaintiff incorporates by reference and realleges each and every alle

contained above as though fully set forth herein.

172. The Individual Defendants owed to plaintiff and the members of the Class c

fiduciary duties as fully set out herein.

173. By committing the acts alleged herein, the Individual Defendants breached

fiduciary duties owed to plaintiff and the members of the Class.

174. AB Acquisition, Albertson’s Holdings, Albertson’s LLC, Merger Sub,

Cerberus Capital colluded in or aided and abetted the Individual Defendants’ breach of fidu

duties, and were active and knowing participants in the Individual Defendants’ breach of fiduciar

duties owed to plaintiff and the members of the Class.

175. AB Acquisition, Albertson’s Holdings, Albertson’s LLC, Merger Sub, an

Cerberus Capital participated in the breach of the fiduciary duties by the Individual Defendants fo

the purpose of advancing their own interests. AB Acquisition, Albertson’s Holdings, Albertson’

LLC, Merger Sub, and Cerberus Capital obtained and will obtain both direct and indirect benefit

from colluding in or aiding and abetting the Individual Defendant’s breaches. AB Acquisit

Albertson’s Holdings, Albertson’s LLC, Merger Sub, and Cerberus Capital will benefit from

acquisition of the Company at an inadequate and unfair consideration if the Proposed Transac

I is consummated.



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176. Plaintiff and the members of the Class shall be irreparably injured as a direct

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proximate result of the aforementioned acts.

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PRAYER FOR RELIEF

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WHEREFORE, Plaintiff demands injunctive relief, in its favor and in favor of the

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and against Defendants as follows:

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A. Declaring that this action is properly maintainable as a class action;

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B. Declaring that the defendants, jointly and severally, violated Sections 14(a) and/

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Section 20(a) of the Exchange Act, as well as Rule 14a-9 promulgated thereunder;

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C. Declaring and decreeing that the Merger Agreement was agreed to in breach of t

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duties and obligations of the Individual Defendants and is therefore unlawful and unenforceable;

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D. Rescinding, to the extent already implemented, the Merger Agreement;

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E. Enjoining defendants, their agents, counsel, employees, and all persons acting

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concert with them from consummating the Proposed Transaction, unless and until the Compan

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(i) adopts and implements a procedure or process reasonably designed to enter into a merg

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agreement providing the best possible value for the Class; and/or (ii) provides Safew

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shareholders with all material information concerning the Proposed Transaction as required by t

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Exchange Act;

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F. Directing defendants, jointly and severally, to account to plaintiff and the Class f

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all damages suffered and to be suffered by them as a result of the wrongs complained of herein,

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the merger is consummated;

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G. Imposition of a constructive trust, in favor of plaintiff and the other members of

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Class, upon any benefits improperly received by defendants as a result of their wrongful conduct;

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H. Awarding plaintiff the costs and disbursements of this action, including reasonable

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attorneys’ and experts’ fees; and

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I. Granting such other and further equitable relief as this Court may deem just and

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I proper.


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REQUEST FOR JURY TRIAL

Plaintiff hereby demands a trial by jury on all counts so triable pursuant to Federal Rule

Civil Procedure 38.

Dated: May 22, 2014 WOLF HALDENSTEIN ADLER FREEMAN & HERZ LLP

By: /s/ Betsy C. Manifold BETSY C. MANIFOLD

FRANCIS M. GREGOREK [email protected] BETSY C. MANIFOLD [email protected] RACHELE R. RICKERT [email protected] MARISA C. LIVESAY [email protected] 750 B Street, Suite 2770 San Diego, CA 92101 Telephone: 619/239-4599 Facsimile: 619/234-4599

Attorneys for Plaintiff

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I SAFEWAY:20832.COMPLAINT

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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

francis m. gregorek (144785) - stanford...

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