Sobeys Inc. to Acquire Canada Safeway - Empire Company to Own 100% of the Combined Company

NOT FOR DISTRIBUTION IN THE U.S.

STELLARTON, NS, June 12, 2013 /CNW/ - Empire Company Limited ("Empire" or the "Company") (TSX: EMP.A) and its wholly-owned subsidiary, Sobeys Inc. ("Sobeys"), have announced that Sobeys has reached a definitive  agreement with Safeway Inc. to acquire substantially all of the assets of Canada Safeway Limited ("Canada Safeway") for a cash purchase price of Cdn. $5.8 billion, subject to a working capital adjustment, plus the assumption of certain liabilities.

Paul D. Sobey, President and CEO of Empire said, "This is a significant and historic event for Sobeys, which has been proudly serving Canadian food shoppers for 106 years. The acquisition of Canada Safeway represents an excellent strategic fit, strengthening our presence in Western Canada with the addition of great employees, excellent stores and exceptional real estate.

"The acquisition allows us to leverage our existing assets and in turn position Sobeys to compete even more effectively within the changing, and increasingly competitive, grocery retail landscape. Empire is committed to continuing its focus on food retailing and related real estate assets and will continue to own 100 percent of Sobeys which will be a stronger food company with excellent growth prospects."

Transaction Overview and Rationale

The assets to be purchased by Sobeys include the following:

• 213 full service grocery stores under the Safeway banner in Western Canada;
• 199 in-store pharmacies with market leading productivity;
• 62 co-located fuel stations;
• 10 liquor stores;
• 4 primary distribution centres and related wholesale business; and
• 12 manufacturing facilities.

The acquisition of Canada Safeway represents a unique and highly strategic opportunity for Sobeys to leverage its existing asset base.  Management believes that, for several reasons, including those described below, the transaction will significantly enhance Sobeys' scale, while creating an opportunity to realize meaningful synergies and earnings accretion:

• Creates a new growth platform for Sobeys
• Positions Sobeys as a leading grocer in Western Canada and the #1 grocer in the fast-growing Alberta market
• Solidifies Sobeys' #2 position nationally with pro forma revenue of approximately $24 billion
• Canada Safeway has an exceptional store network totaling approximately 9 million square feet in sought-after locations of which over 60 percent is located in Vancouver, Calgary, Edmonton and Winnipeg
• $1.8 billion in owned real estate (based on an independent appraisal as at March 30, 2013)
• Aligned corporate strategy - both companies have complementary offerings, are focused on excellence in fresh food and represent a great cultural fit
• Strengthens Sobeys' talent base
• Identified cost synergies of approximately $200 million annually within three years
• Management expects the acquisition to be immediately accretive to adjusted net earnings per share and in excess of 25 percent accretive once synergies are fully realized
• Significant free cash flow generation and rapid de-leveraging

"We are very excited by this acquisition and the future opportunities it presents," said Marc Poulin, President and CEO of Sobeys. "This is a win-win for both companies, as well as for our customers and employees. Our employees have always been the foundation of our success and, with the addition of the great team at Canada Safeway, our customers can continue to expect a high quality offering with excellence in fresh food supported by great service. Our offering will only get stronger as we share and build upon best practices of two great businesses."

Mr. Poulin added, "Sobeys expects to benefit from increased economies of scale. We anticipate capturing annual cost synergies of approximately $200 million within three years, through integrating and modernizing distribution networks, reducing cost in procurement, administration and marketing, and leveraging Sobeys' IT infrastructure."

Financial Highlights

For the 52 week period ended March 23, 2013, Canada Safeway generated approximately $6.7 billion of sales and $513 million of adjusted EBITDA. After giving effect to the full realization of $200 million of expected synergies, the planned Sale-Leaseback described below, and assumed capital leases, management has placed an effective acquisition multiple on the transaction of approximately 7.4 times adjusted EBITDA.  Management expects the transaction to be immediately accretive to adjusted net earnings per share and in excess of 25 percent accretive once synergies are fully realized.

Financing of the Transaction

The acquisition of Canada Safeway's assets will be paid for in cash in Canadian dollars. It is Empire's and Sobeys' intention that financing for the acquisition will come from a combination of the following: (i) a $1.5 billion Empire equity offering; (ii) a planned $1.0 billion sale-leaseback of acquired real estate assets (the "Sale-Leaseback"); (iii) a $1.825 billion term loan and the issuance of $800 million in unsecured notes by Sobeys; (iv) other real estate and non-core asset sales; and (v) available cash on hand.  As some of these transactions may not be completed by the time of closing, Scotiabank has provided Empire and Sobeys with fully committed credit facilities for the full purchase price plus transaction expenses required to close the transaction. Crombie REIT has a right of first offer in respect of any real estate sales undertaken by Sobeys.

Closing of the Transaction and Other Information

Closing of the transaction is subject to customary conditions, including receipt of relevant regulatory approvals and is expected to occur in the fall of 2013.

Scotiabank and Morgan Stanley acted as advisors to Empire on the acquisition.

There can be no assurance that the transaction will close or that an equity or debt offering will be undertaken or completed in whole or in part or the timing of any such transaction.  No securities will be offered or sold in the United States or to U.S. persons absent registration under the U.S. Securities Act of 1933 or the availability of an applicable exemption from such registration.  This press release does not constitute a solicitation of an offer to purchase, or an offer to sell, securities in the United States or elsewhere.  Sobeys has not yet entered into any agreements to sell any real estate or other assets and there is no guarantee that any real estate or other assets will in fact be sold, and actual net proceeds from any such transaction is uncertain. Closing of the transaction is not conditional on the completion of any of the foregoing.

CONFERENCE CALL

Empire will hold a conference call for analysts and investors today (June 12, 2013) at 5:00 p.m. (Eastern Daylight Time) to discuss this announcement in further detail.  To join this conference call, dial [phone] outside the Toronto area or [phone] from within the Toronto area.  You may also listen to a live audiocast of the conference call by visiting the Company's website located at www.empireco.ca.  Media and the public can participate in a listen mode.

Presentation slides for the conference call will be made available on the Company's website located at www.empireco.ca and also available on the Sobeys website located at www.sobeyscorporate.com.

Replay will be available by dialing [phone] and entering passcode 95009965 until midnight June 19, 2013, or on the Company's website for 90 days following the conference call.

FORWARD-LOOKING INFORMATION

Certain statements made in this press release that are not current or historical factual statements may constitute "forward-looking information" within the meaning of applicable Canadian securities legislation. Forward-looking information in this press release includes, but is not limited to, statements regarding the timing and completion of the proposed acquisition (including the final number of locations), final financing breakdown (including the amount of bridge financing drawn and the timing of paying back any bridge financing drawn), timing and value of expected synergies, the effective acquisition multiple and accretion (which may be impacted by the offering price of any equity offering and other final financing arrangements), market share, competitive position, growth prospects, benefits from economies of scale, future business strategy, expectations regarding operations and future oriented financial information such as estimates regarding future sales, revenues, margins, cash flows, costs and other financial and credit metrics. When used in this press release, forward-looking information may be qualified by words such as "anticipate", "believe", "estimate", "expect", "intend", "may", "plan", "will" and other similar terminology suggesting future outcomes or statements regarding an outlook.

The forward-looking information disclosed herein involves numerous assumptions, known and unknown risks, uncertainties and other factors, many of which are beyond the control of Empire or Sobeys which may cause actual events, results, performance or achievements of Empire, Sobeys and Canada Safeway to be materially different from those expressed or implied by such forward-looking information. These factors include, among other things: (i) the number of stores that Sobeys may be required to divest as a condition of required regulatory approvals; (ii) the ability of Empire/Sobeys/Canada Safeway to achieve expected synergies and the timing of same; (iii) the ability of Empire/Sobeys/Canada Safeway to predict and adapt to changing consumer tastes, preferences and spending patterns; (iv) risks relating to the satisfaction of the conditions to closing the transaction and the related financing arrangements; (v) the ability of Empire/Sobeys/Canada Safeway to protect its intellectual property; (vi) the expected pace of expansion of Empire's/Sobeys'/Canada Safeway's operations; (vii) the absence of material litigation, (viii) future results being similar to historical results; (ix) expectations related to future general economic and market conditions, including debt and equity capital markets; * expectations concerning the future legislative and regulatory environment in which Empire/Sobeys/Canada Safeway operates; (xi) effectiveness of integration efforts; (xii) ability of the Sale-Leaseback and sales of other real estate and non-core assets to be completed on favourable terms, or at all, and the timing of same; and (xiii) such other risks as described in detail from time to time in documents filed by Empire or Sobeys with securities regulatory authorities in Canada. While these assumptions, risks and uncertainties do not represent a complete list of factors which may cause events to be materially different than those expressed or implied by forward-looking statements in this press release, they should be considered carefully.

While the forward-looking information contained herein is based on estimates and assumptions made by management in light of its experience, perception of historical trends, current conditions and expected future developments, all of which is believed to be reasonable, accurate and reliable, neither Empire, Sobeys nor their affiliates, officers, directors, agents and representatives make any representation or warranty, expressed or implied, as to the accuracy or completeness of such information or of any other written or oral information disclosed in or implied by this press release, and Empire and Sobeys, their affiliates, officers, directors, agents and representatives expressly disclaim any responsibility or liability in connection therewith or arising therefrom. The forward-looking information contained in this press release reflects management's current expectations regarding future events and operating performance, speaks only as of the date of this press release and is expressly qualified by this cautionary statement.  Neither the Company nor Sobeys undertakes to update any forward-looking statements that may be made from time to time by them or on their behalf other than as required by applicable securities laws.

This press release is not, and under no circumstances is to be construed as, a prospectus, an offering memorandum, an advertisement or a public offering of securities.

NON-IFRS MEASURES

This press release makes reference to certain non-IFRS measures. These non-IFRS measures are not recognized measures under IFRS, do not have a standardized meaning prescribed by IFRS and are therefore unlikely to be comparable to similar measures presented by other companies. Rather, these measures are provided as additional information to complement IFRS measures by providing further understanding of operations from management's perspective. Accordingly, non-IFRS measures should never be considered in isolation nor as a substitute for analysis of financial information reported under IFRS. Management presents non-IFRS measures, specifically EBITDA, adjusted EBITDA, adjusted net earnings and free cash flow as it believes these non-IFRS measures are frequently used by securities analysts, investors and other interested parties as measures of financial performance and to provide a supplemental measure of operating performance and thus highlight trends that may not otherwise be apparent when relying solely on IFRS financial measures.  The definitions of the non-IFRS measures contained in this release are as follows:

EBITDA is calculated as net earnings before net finance costs, income taxes and depreciation and amortization of intangibles.

Adjusted EBITDA and adjusted net earnings are calculated as the base number adjusted for: (i) items as they will be applicable to Sobeys on a pro forma basis following the transaction including management, IT and royalty fees, interest income and stock-based compensation charges; (ii) changes in accounting policies and foreign exchange; and (iii) items which are considered by management as not indicative of underlying business operating performance such as gain/loss on the disposal of assets.

Free cash flow is calculated as cash flow from operating activities, plus proceeds on disposal of property, equipment and investment property, less property, equipment and investment property purchases.

ABOUT EMPIRE

Empire Company Limited (TSX: EMP.A) is a Canadian company headquartered in Stellarton, Nova Scotia.  Empire's key businesses include food retailing and corporate investment activities.  With over $17 billion in annual sales and approximately $7.0 billion in assets, Empire and its subsidiaries directly employ approximately 47,000 people.

Additional financial information relating to Empire, including the Company's Annual Information Form, can be found on the Company's website at www.empireco.ca or at www.sedar.com.

ABOUT SOBEYS
Proudly Canadian, with headquarters in Stellarton, Nova Scotia, Sobeys has been serving the food shopping needs of Canadians for 106 years. A wholly-owned subsidiary of Empire Company Limited (TSX:EMP.A), Sobeys owns or franchises more than 1,300 stores in all 10 provinces under retail banners that include Sobeys, IGA, Foodland, FreshCo, and Thrifty Foods, as well as Lawton's Drug Stores, in addition to over 260 retail fuel locations. Sobeys and its franchise affiliates employ more than 95,000 people. The company's goal is to be widely recognized as the best food retailer and workplace environment in Canada.  More information on Sobeys Inc. can be found at www.sobeyscorporate.com.

Image with caption: "Sobeys acquires 213 Safeway stores in Western Canada, strengthening its position as a leading grocery retailer in the country. (CNW Group/EMPIRE COMPANY LIMITED)". Image available at: http://photos.newswire.ca/images/download/20130612_C6650_PHOTO_EN_27953.jpg

SOURCE: EMPIRE COMPANY LIMITED

Paul Beesley
Executive Vice President & Chief Financial Officer
Empire Company Limited
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Paul Jewer
Chief Financial Officer
Sobey Inc.
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Media Inquiries:

Andrew Walker
Vice President, Communications & Corporate Affairs
Sobeys Inc.
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