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Much Awaited IPO of SWY's Subsidiary

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On Mar 18, Blackhawk Network Holdings, a subsidiary of Safeway , announced the filing of the registration statement for the highly anticipated initial public offering (IPO) of a minority stake. Goldman Sachs (GS - Free Report) , BofA Merrill Lynch, Citigroup (C - Free Report) and Deutsche Bank Securities under Deutsche Bank (DB - Free Report) are the joint-book running managers for the public offering.

Earlier in Sep 2012, Safeway had revealed its plan to spin off Blackhawk into a public company. According to its most recent earnings call, Safeway expected to execute the transaction in the first half of 2013.

The IPO will comprise solely of shares by current shareholders, including Safeway. However, the company is yet to decide on the number of shares and the price range for the offering.

About Blackhawk

Blackhawk provides prepaid products and payment services to consumers through a network of retail store locations in the U.S., Canada, Europe, Mexico and Australia along with various online channels. These prepaid products include closed loop (private branded) cards, open loop (network branded) cards, financial services products and telecom products.

Additionally, Blackhawk provides card production services, a secondary market for prepaid cards and has recently introduced digital wallet services. Blackhawk also has gift card businesses in UK and Australia.

Our Take

In 2012, the load value of cards sold by Blackhawk increased 23% compared with 25% growth in the previous year. The company is optimistic about a strong 2013 for Blackhawk. In the interim, we will be paying close attention to the IPO. With Blackhawk’s IPO, the company’s growth profile will solely rely on its food and drug retail business.

Management seems to have chalked out a strategic working plan to support Safeway’s ongoing positive business momentum after a string of challenging quarters in the past. Following the public offering, we expect the company to sharpen focus on its mainstream retail operations and improve its competitive position against peers.

Thus, we look forward to fiscal 2013 with real optimism. Accordingly, the stock carries a Zacks Rank #1 (Strong Buy).

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