By Olivia Oran and Soyoung Kim
NEW YORK (Reuters) - A handful of buyout firms, including Cerberus Capital Management LP, are exploring a deal for all or part of supermarket chain Safeway Inc
Safeway, the second-largest U.S. mainstream grocery store operator with a market value of over $8 billion, is not running an auction currently, but is aware of the buyout interest and reviewing options with advisor Goldman Sachs Group Inc
They asked not to be named because the matter is confidential. Safeway, Cerberus and Goldman declined to comment.
The interest from private equity firms comes at a critical time for Pleasanton, California-based Safeway.
Activist investor Jana Partners LLC reported a 6.2 percent stake in Safeway in September, saying the company's shares are undervalued, and it held talks with Safeway management about reviewing strategic alternatives.
In response to Jana's disclosure, Safeway had adopted a so-called poison pill to prevent an unwanted takeover of the company. Its board also had authorized $2 billion in stock repurchases and announced plans to exit the Chicago market.
Deliberations over a potential buyout are at an early stage, and it remains unclear if a bid will materialize for Safeway.
But private equity's interest in Safeway underscores how buoyant debt markets have encouraged more firms to consider larger deals approaching $10 billion, which had largely remained elusive since the financial crisis.
In the most striking example this year, Blackstone Group LP
Cerberus is no stranger to the supermarket sector. In January, a Cerberus-led investor group acquired a group of grocery chains from Supervalu Inc
Prior to that transaction, Cerberus already owned 650 Albertsons locations as a result of 2006 deal under which the chain was acquired and its stores broken up between the private equity investor, Supervalu and CVS Caremark Corp
Safeway was in the hands of private equity before. KKR took Safeway private in 1986, and then sold its stake in 1999 to make more than $7 billion on its original investment.
GROCERY DEALS ON THE RISE
Safeway and other mainstream U.S. grocery retailers have faced mounting pressure from competitors such as Whole Foods Market Inc
This pressure has driven deals in the grocery sector.
In July, Kroger Co
In May, Belgium-based food retailer Delhaize sold three U.S. supermarket chains to rival Bi-Lo Holdings for $265 million.
Even before Jana's activist campaign, Safeway was looking to streamline by selling off non-core businesses. The company spun off its gift card provider, Blackhawk Network Holdings Inc
It also sold off its Canadian operations to Empire Co Ltd
(Reporting by Olivia Oran and Soyoung Kim in New York. Editing by Andre Grenon)