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Analyst: Safeway should sell Canadian operations

NEW YORK (AP) -- Safeway's shares climbed nearly 5 percent on Wednesday after an analyst called for the grocery chain to sell its Canadian operations.

THE SPARK: BMO Capital Markets' Karen Short said in a client note that she values Safeway Inc.'s Canadian operations at approximately $5.5 billion.

The analyst wrote that Canadian grocer Metro Inc.'s Tuesday announcement that it will sell almost half its stake in Alimentation Couche-Tard Inc. — along with Canadian supermarket operator Loblaw Cos. announcement last month that it is creating a real estate investment trust — is raising speculation that some Canadian companies are looking to boost their financial flexibility in case there's a bidding war for Safeway Canada.

THE ANALYSIS: Short said that now is a good time for Safeway to consider selling its Canadian operations because there is significant interest in it and a bidding war is possible.

The analyst said she has no insight though into whether or not a transaction is imminent or even likely. She believes that selling the Canadian operations could give a nearly 25 percent boost to Safeway's stock price.

BMO maintained an "Outperform" rating and $25 price target for the Pleasanton, Calif. company.

SHARE ACTION: Safeway's stock added 85 cents, or 4.5 percent, to $19.70 in very heavy afternoon trading. The shares have traded in a 52-week range of $14.73 to $23.16. The stock is up 5 percent since early December, when Loblaw made its REIT announcement.