PLEASANTON, Calif., March 7, 2014 (GLOBE NEWSWIRE) -- Blackhawk Network Holdings, Inc. (Nasdaq: HAWK ) parent company Safeway Inc. affirmed in a press release on March 6, 2014 its intention to distribute its 37.8 million shares of Blackhawk common stock to Safeway shareholders and further indicated that it expects to complete the distribution by mid-April. In addition, in a separate transaction Safeway announced that it has entered into a definitive agreement to merge with Albertsons which, if consummated, may allow Blackhawk to obtain a step-up in the tax basis of its assets, anticipated to provide significant incremental long-term tax benefits to Blackhawk. The distribution of Blackhawk shares is not dependent upon the completion of Safeway's merger with Albertsons and is being undertaken for independent business reasons.
Impact on Blackhawk
Blackhawk's day-to-day operations of its prepaid products business have been conducted independently for the past two years, except for sharing tax and treasury management functions. As a result, Safeway's change in ownership will not adversely impact Blackhawk's operations and the distribution by Safeway will complete Blackhawk's independence as a stand-alone public company. Bill Tauscher, Blackhawk CEO, commented, "Safeway has been a tremendous asset as Blackhawk's parent company and we've worked closely together to build a powerful prepaid payments company. But Safeway also recognized early on that, in order for Blackhawk to build a leading third-party gift card business, Blackhawk would need to operate independently and partner with many grocery retailers that compete with Safeway. Safeway's Board of Directors recently concluded that to further build on Blackhawk's past successes and maximize our value, Safeway's divestiture of its remaining ownership in Blackhawk would open up additional market opportunities for us."
Blackhawk previously announced on February 20, 2014 that, in anticipation of Safeway's distribution of its ownership in Blackhawk, the Company has executed a non-binding term sheet and is currently negotiating a credit agreement of up to $475 million with a group of banks led by Wells Fargo Bank, N.A. The facility includes a $175 million 4-year term loan and a revolving credit facility of up to $200 million with up to an additional $100 million during the year-end holiday period for specific settlement related requirements. The completion of the facility is subject to final negotiation, due diligence and various closing conditions, including termination of Blackhawk's current cash management and treasury services agreement and revolving credit facility with Safeway. This credit facility is currently expected to close by the end of March 2014, and will allow Blackhawk to independently finance its currently anticipated operating needs and investment opportunities. As previously announced at its Investor Conference on February 20, 2014, Blackhawk's estimated interest expense under the facility would total approximately $5.0 million to $5.2 million in fiscal 2014 representing the financing cost for its two recent acquisitions, borrowings for normal working capital needs and other credit support.
Potential Tax Benefit
Independent of its merger with Albertsons, Safeway previously announced its intention to spin-off its ownership in Blackhawk. If the merger is completed, it is expected that the distribution of Blackhawk shares will be taxable to Safeway and its shareholders. As part of the merger agreement, the buyer will assume the corporate tax on the distribution of Blackhawk shares to Safeway shareholders. It is also anticipated that there will be a step-up in the tax basis of Blackhawk's assets that could generate approximately $30 million in cash tax savings per annum for Blackhawk. On a present value basis, using a 10% discount rate, over 15 years this tax savings is valued at approximately $230 million or approximately $4.50 per Blackhawk share. The actual benefits realized will be dependent upon, among other things, Blackhawk generating adequate taxable income to fully utilize the deductions and the value of Blackhawk at the time of the distribution.
Extension of Distribution Agreement with Safeway
Blackhawk also recently extended its distribution agreement with Safeway Inc. to be its exclusive provider of prepaid products in all its U.S. grocery stores through 2019 (presently 1,335 stores). Under the agreement, Safeway will continue to sell Blackhawk's full range of prepaid products including prepaid gift cards, prepaid telecom products and general purpose reloadable debit products. All other terms of the agreement remain unchanged. Talbott Roche, Blackhawk President, said, "As we do with all our partners, we will continue to work very closely with Safeway to maximize the effectiveness of its prepaid products programs. This extension also reinforces Safeway's faith in Blackhawk as the premier supplier of prepaid products."
Blackhawk is also the prepaid products supplier to Albertsons. Together, Safeway and Albertsons operate under a variety of banners in 34 states and the District of Columbia.
Additional Information
Blackhawk will continue to provide updates as additional details and the dates regarding the spin-off are finalized. Blackhawk management also plans to hold investor information webcasts or meetings prior to Safeway's completion of its distribution in mid-April.
About Blackhawk Network
Blackhawk Network Holdings, Inc. is a prepaid payment network which supports the physical and digital distribution of a variety of prepaid products. Blackhawk Network utilizes proprietary technology to provide consumers a wide selection of gift cards, prepaid telecom handsets, airtime cards and general purpose reloadable cards across a global network totaling over 180,000 stores. Through Blackhawk's digital platform, the Company supports prepaid products and offers across a growing network of digital distribution partners including leading etailers, financial service providers, social apps, mobile wallets and other integrated physical-to-digital channels. Founded in 2001, Blackhawk Network is headquartered in Pleasanton, California, and offers products and services in the United States and 20 other countries. For more information, please visit www.blackhawknetwork.com and www.giftcardmall.com . Blackhawk is a majority-owned subsidiary of Safeway Inc. (NYSE: SWY ). More information is available at www.blackhawknetwork.com .
Forward Looking Statements
This press release may contain certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Forward-looking statements are indicated by words or phrases such as "guidance," "believes," "expects," "anticipates," "estimates," "plans," "continuing," "ongoing," and similar words or phrases and the negative of such words and phrases. Forward-looking statements are based on our current plans and expectations and involve risks and uncertainties which are, in many instances, beyond our control, and which could cause actual results to differ materially from those included in or contemplated or implied by the forward-looking statements. Such risks and uncertainties include the following: our ability to achieve the tax benefits related to the announced transaction involving Safeway and Albertsons, including the ultimate closing of that transaction and the timing of the spin-off of our shares by Safeway, our ability to complete negotiation of the contemplated credit facility, our ability to grow adjusted operating revenues and adjusted net income as anticipated, our ability to grow at historic rates or at all, the consequences should we lose one or more of our top distribution partners or fail to attract new distribution partners to our network or if the financial performance of our distribution partners' businesses decline, our reliance on our content providers, the demand for their products and our exclusivity arrangements with them, our reliance on relationships with card issuing banks, the consequences to our future growth if our distribution partners fail to actively and effectively promote our products and services, the requirement that we comply with applicable laws and regulations, including increasingly stringent money-laundering rules and regulations, risks related to our ongoing relationship with Safeway and other risks and uncertainties described in our reports and filings with the Securities and Exchange Commission, including the registration statement filed in connection with our initial public offering and our subsequent Quarterly Reports on Form 10-Q. We undertake no obligation to update forward-looking statements to reflect developments or information obtained after the date hereof and disclaim any obligation to do so other than as may be required by law.
INVESTORS/ANALYSTS: Patrick Cronin (925) 226-9973 MEDIA: Teri Llach (925) 226-9028
