By Brooke Sutherland

Bloomberg News

NEW YORK — A takeover of Safeway at the industry’s lowest valuation in almost a decade may be the best its investors can get.

Cerberus Capital Management agreed last week to merge Safeway, the second-largest U.S. grocery chain, with its Albertsons chain in a $40-a-share bid of cash, stock and asset sales. Kroger also approached Safeway about buying part of its operations, according to people familiar with the matter. Even if Kroger offered $45 to buy the whole company, Safeway would still be getting the lowest profit multiple for a food retail deal of more than $1 billion since 2004, according to data compiled by Bloomberg.

Cerberus’ offer, which probably left some shareholders wanting more, is reasonable because Safeway’s business has deteriorated in the face of increasing competition from lower-priced operators, according to S&P Capital IQ. While Deutsche Bank said Kroger should make a counterbid for Safeway to bolster its position as the No. 1 U.S. grocer, Susquehanna International said Kroger is more likely to settle for any assets Cerberus may divest to appease regulators.

“People were looking for more,” Bob Summers, a New York-based analyst at Susquehanna, said in a phone interview. The valuation is “more than fair. Safeway has been an underperforming asset.”

Representatives for Pleasanton, Calif.-based Safeway, Cincinnati-based Kroger and New York-based Cerberus declined to comment.

Cerberus’ Albertsons chain last week said it would buy Safeway and its 1,335 U.S. stores to help it better compete with Kroger for grocery sales that IBISWorld Inc. estimated will decline 1.7 percent this year nationwide. Kroger may still play a role in the deal because the agreement includes a 21-day “go- shop” period designed to solicit other bids.

In the Cerberus proposal, Safeway shareholders will receive $32.50 a share in cash and about $3.95 in stock in Safeway’s gift-card unit Blackhawk Network Holdings Inc.