Safeway announced Tuesday its adoption of a shareholders rights plan, or “poison pill,” that will cap any stake in the grocery giant at 10 percent to ward off unwanted advances.
The move came on the heels of a disclosure by Jana Partners—a $6 billion hedge fund headed by Barry Rosenstein—in a regulatory filing that it had accumulated a 6.2 percent stake in Safeway at an aggregate purchase price of nearly $320 million.
Jana, which has a reputation for pushing for change at companies in which it invests, has urged Safeway to conduct a strategic review of its options and consider the sale of certain assets to bolster profits, according to news reports.
Latham & Watkins is serving as outside counsel to Safeway as it prepares for a possible proxy fight with Jana. Leading the Latham team are of counsel Barry Bryer, a former head of the firm’s takeover defense group before retiring from the partnership earlier this year, and corporate partner Scott Haber and associate Tiffany Campion.
Robert Gordon, who became Safeway’s general counsel in 2000 after the retirement of predecessor and former Latham partner Michael Ross, is heading up an in-house team that includes vice president of corporate law Laura Donald.
Kenneth Oder, a former labor and employment partner at Latham, has been an independent member of the board of directors at Safeway since 2008. Oder was a Latham partner from 1975 to 1992, leaving the firm in 1993 to become Safeway’s executive vice president of labor relations, human resources, and legal and public affairs.
The Pleasanton, California–based supermarket chain, which is one of North America’s largest food retailers, has been a longtime Latham client. The firm advised Safeway on its $5.5 billion sale to KKR in 1986—the company is now public after the private equity giant cashed out with a $7 billion profit in 1999—and $1.6 billion purchase of a controlling stake in The Von Companies a decade later.
This summer, Latham counseled Safeway on the $5.7 billion sale of its Canadian arm to the Empire Company’s Sobeys chain, according to our previous reports. Latham also represented Safeway earlier this year on a $230 million initial public offering for its gift card business Blackhawk Network Holdings, which yielded nearly $1.7 million in legal fees and expenses, according to securities filings. (Safeway retains a 73 percent ownership stake in Blackhawk.)
Safeway cited those transactions as evidence that it "can continue to implement its strategic plan and maximize the long-term value of the company for all shareholders."
Jana's interest in Safeway comes amid a surge in shareholder activism that has spawned a growing debate—see the ongoing tit-for-tat between poison pill inventor Martin Lipton of Wachtell, Lipton, Rosen & Katz and Harvard Law School professor Lucian Bebchuk—about whether such investments strengthen or weaken companies. Skadden, Arps, Slate, Meagher & Flom recently helped struggling retail giant J.C. Penney fend off activist investor William Ackman.
Beyond Safeway, Jana announced earlier this year that it had invested in e-commerce company Groupon and social media game maker Zynga. The hedge fund also lost a proxy contest in April with Canadian agricultural products provider Agrium. Davies Ward Phillips & Vineberg partners I. Berl Nadler and J. Alexander Moore advised Jana during that battle, while Blakes, Cassels & Graydon and Paul, Weiss, Rifkind, Wharton & Garrison represented Calgary-based Agrium. (Norton Rose Fulbright took the lead for Agrium's board.)
Last year Jana took a 12 percent stake in struggling bookstore chain Barnes & Noble, whose shares surged 18 percent upon news of the investment. Safeway’s shares rose nearly 10 percent Tuesday and closed up another 1 percent Wednesday as the company unveiled details of its poison pill in a series of SEC filings.
Another SEC filing by Safeway showing Jana’s investment in the company bears the name of Schulte Roth & Zabel business transactions chair Marc Weingarten and corporate partner Eleazer Klein. While Schulte has previously advised Jana, the New York–based hedge fund has so far handled its Safeway investment in-house.
As it happens, Jana’s in-house ranks are staffed with Schulte alums. Gary Claar, a cofounder of the hedge fund who transitioned to a senior advisory role last year, began his career at the firm. Two former Schulte associates, Charles Penner and Jennifer Fanjiang, serve as Jana’s chief legal officer and general counsel, respectively.
Should Jana’s investment in Safeway become more contentious, it’s likely Schulte will be brought in as outside counsel. The firm’s hedge fund connections are well-known, and Weingarten has advised Jana on its push to break up The McGraw-Hill Companies, which sold its education unit in a $2.5 billion deal last year. Weingarten has also counseled Jana in past proxy fights at media conglomerate Time Warner and former energy company Kerr-McGee.
Jana also turned to Schulte to represent it in bankruptcy court against claims brought by former clients of Marc Dreier, who accused the disgraced New York litigator of cutting a sweetheart settlement with the hedge fund in another case in order to scare up some much-needed cash.
Schulte made news of its own this week, announcing its hire of New York University School of Law professor Samuel Estreicher as of counsel in its labor and employment group. Estreicher is the director of the school’s Center for Labor and Employment and codirector of its Opperman Institute of Judicial Administration, two positions that he will retain in addition to his new role at Schulte.