Safeway Inc. said it would use the proceeds from the sale of Canada Safeway Limited to pay down $2.0 billion of debt, with the majority of the remainder to be used to buy back stock.
"Some of the proceeds may be used to invest in growth opportunities," the Pleasanton, California-based company said in a statement.
Sobeys, a wholly owned subsidiary of Empire Company Ltd. will also assume certain liabilities of the Canadian business, it said.
"The substantial cash proceeds from this transaction will allow us to create value for Safeway stakeholders and contribute to the growth of the ongoing business," Robert Edwards, Safeway president and chief executive, said in the statement.
In the 12 months ended March 23, Canada Safeway had revenues of CAN$6.7 billion and an adjusted operating profit of CAN$428 million.
Paul Sobey, president and CEO of Empire, called the deal a "historic event" for the 106-year-old Sobeys grocery chain.
"The acquisition of Canada Safeway represents an excellent strategic fit, strengthening our presence in Western Canada," he said in a separate statement.
Sobeys said the assets it will purchase include 213 grocery stores, 199 in-store pharmacies and 12 manufacturing facilities.
The transaction, approved by the boards of directors of both companies, is expected to close in the fourth quarter of 2013, subject to Canadian regulatory approval, Safeway said.
The US company also said it remained responsible for Canada Safeway's CAN$300 million in public debt due March 2014, which was not part of the deal.
Safeway shares soared 40.6 percent to $32.50 in post-market trade in New York.