Safeway Inc., the second-largest grocery chain in the U.S., is planning an initial public offering of a minority stake in its Blackhawk Network Holdings Inc. business.
The transaction may take place in the first half of 2013, depending on market conditions, Pleasanton, Calif.-based Safeway said in a statement today. Blackhawk provides prepaid products, such as restaurant gift cards, to retail and grocery stores in the U.S., Canada, Europe, Mexico and Australia.
Blackhawk is "an undervalued asset within the company," Charles Cerankosky, a Cleveland-based analyst at Northcoast Research Holdings LLC, said in an interview. The business generates at least $100 million in earnings before interest, tax, depreciation and amortization, he said.
The load value, or purchase amount put on gift cards, increased 25% in 2011 to $6.9 billion, William Tauscher, chairman and chief executive officer of Blackhawk, said at an investor conference in March. Profit at Safeway, which is facing more competition from big-box retailers and dollar stores, fell 12% last year and may drop about 5.7% this year, according to analysts' estimates compiled by Bloomberg.
Safeway, which operates 1,666 stores in the U.S. and Canada, rose 3.7% to $16.41 at 9:55 a.m. in New York. The shares had fallen 25% this year through yesterday.
Kroger Co. is the largest grocery-store chain in the U.S.
