Safeway plans IPO of Blackhawk gift card unit

Thu Sep 6, 2012 2:01am IST

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(Reuters) - Safeway Inc (SWY.N) said on Wednesday it plans to take its Blackhawk Network Holdings Inc gift card and payment services unit public in the first half of next year, sending the shares of the grocer up more than 4 percent.

Safeway, one of the largest U.S. supermarket chains, said it plans to file a registration statement for a potential initial public offering of a minority stake in Blackhawk, a move long- awaited by Wall Street investors.

Safeway shares closed 4.3 percent higher at $16.50 on the New York Stock Exchange.

Blackhawk, which analysts believe has substantially higher gross margins than Safeway's core business, sells prepaid gift, debit and telephone cards through thousands of retail outlets, including supermarkets, pharmacies and convenience stores. It also runs the payment and gift card infrastructure for Safeway and other retailers.

Companies ranging from Green Dot Corp (GDOT.N) and NetSpend Holdings Inc NTSP.O to JPMorgan Chase & Co (JPM.N) and American Express Co (AXP.N) also offer prepaid charge cards.

Blackhawk recently introduced digital wallet services, the company said in its annual report. Upstart mobile payment service providers such as Square have attracted millions of dollars in venture capital funding.

Established Internet companies such as Google Inc (GOOG.O) and PayPal, a unit of eBay Inc (EBAY.O), are players in the closely watched payment niche.

Based on an assumed multiple of 12 times earnings before interest, taxes, depreciation and amortization, and an EBITDA number for the unit disclosed in March, the company would have an enterprise value of $936 million, Janney Capital Markets' Jonathan Feeney said in a client note.

Other analysts came up with lower valuations, based on lower multiples.

Some analysts called the timing of the planned IPO "peculiar," noting that Safeway Chief Executive Steve Burd recently said a Blackhawk deal was not imminent.

"We note that the timing for an IPO of a gift card company is not necessarily favorable right now," said JPMorgan analyst Ken Goldman said in a client note.

Green Dot, which went public at $36 per share in 2010, now trades around $12. The shares of NetSpend, which also went public that year, are down about 15 percent from their IPO price of $11.

Feeney said it was not clear which companies would be used as comparisons for Blackhawk when it goes public, but it had an edge over rivals in the payments sector.

"We expect Blackhawk to trade above many payments industry comps given the growth, returns, and seemingly high barrier-to-entry presented by its niche position," Feeney said of Safeway's business. Unlike other payment services, it offers gift cards.

Safeway has been lagging larger rival Kroger Co (KR.N) for several years and some experts have pegged the Pleasanton, California-based company as a potential acquisition target.

Cantor Fitzgerald Equity Research analyst Ajay Jain was less than enthusiastic about an IPO, saying a spinoff could have "the undesirable effect of further exposing the core retailing operations in a more negative light."

(Reporting by Lisa Baertlein in Los Angeles and Jessica Wohl in Chicago.; Editing by Gerald E. McCormick, Tim Dobbyn, Matthew Lewis and Andre Grenon)

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