More Videos:

Jana Partners Timed Safeway Stake Perfectly

Tickers in this article: KR SWY

Updated from 11:35 a.m. ET to include discussion of Jana stock purchases

NEW YORK (TheStreet) -- Activist hedge fund Jana Partners disclosed an over 6% stake in Safeway  just as merger negotiations between the supermarket chain and Cerberus-owned Albertsons began to heat up. The hedge fund disclosed its stake roughly two weeks after Albertsons first reached out to Safeway, and on the same day that the company's management team first met to discuss a merger.

Safeway shares were trading at about $26 a share when Albertsons first approached Safeway in late August. Shares in Pleasanton, Calif-based Safeway now trade at over $34 a share after the company signed a merger agreement with Albertsons that valued the company $32.50 a share in cash, a distribution of the company's minority stake in Blackhawk Network  and a contingent payment from the sale of the company's Casa Ley business in Mexico. Overall, the deal was valued by Safeway at $40 a share when disclosed in early March.

Proxy filings disclosed on Thursday show that Jana Partners disclosure of its activist stake came just as merger negotiations between Safeway and Albertsons' private equity owner, Cerberus Capital Management, were beginning to take shape.

A separate disclosure from Jana Partners shows that the hedge fund was accumulating its Safeway shares through a large part of the third quarter.

Jana acquired 5.7 million Safeway shares between July 19 and August 20, including a 1.8 million purchase on Aug. 16, the filing shows. Between Aug. 21 and Sept. 16, Jana purchased an additional 3.4 million shares. During that time, Jana was speaking with Safeway's management about how to improve the company's performance, including asset sales and regional closures.

The Timetable

Robert Miller, CEO of Albertsons, first contacted Safeway's CEO Robert Edwards on a possible merger or set of asset sales in late August, proxy filings show. In early September, advisors for Cerberus and Albertsons began their analysis on possible merger and contacted Safeway's banker Goldman Sachs.

On Sept. 5, the CEOs of Safeway and Albertsons met to discuss a deal, with Albertsons focusing on a full merger of the two nationwide grocery chains given the prospective synergy. That day, both companies entered a confidentiality agreement and Albertsons/Cerberus provided initial details on their financing of a transaction. At the same time, Safeway pitched the sale of its Dominick's Finer Food stores in Chicago, a deal which came together in the span of just over a month, netting Safeway about $450 million in a cash tax benefit.

On Sept. 16, Safeway's board met to discuss the prospect of a merger with Albertsons or other grocery chains, but concluded that it wasn't the right time for a deal given the company's share price, $28.24 at the time, and a series of asset sales and strategic initiatives.

"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," the proxy stated.

Later on that day, Jana Partners told Safeway it had purchased over 5% of the company's outstanding stock, indicating the hedge fund had increased its stake in Safeway by nearly tenfold since the end of the second quarter, according to Securities and Exchange Commission filings.

"Over the prior months, Safeway had engaged in dialogue with JANA Partners and other stockholders to understand their views and to help them understand Safeway's business and strategy for maximizing stockholder value," Safeway's proxy stated.

In response to the stake, Safeway enacted a so-called poison pill.

In a 13D filing with the SEC on Sept. 17, Jana disclosed a stake in Safeway representing about 6.2% of the company's outstanding shares and details on its engagement with the company's management. Safeway stock jumped over 10%, closing at $30.99.

That same day, Albertsons CEO Robert Miller and Cerberus co-head of global private equity Lenard Tessler called Safeway's CEO Edwards to reiterate their interest in a merger. Edwards didn't respond to the phone call. Proxy filing show that Safeway's banker, Goldman Sachs, called to tell Cerberus the company wasn't interested in a merger.

Hedge funds have 10-days to disclose positions of greater than 5% of a company's outstanding shares. Cerberus couldn't be immediately reached for comment. Jana Partners declined to comment.