Kroger, the largest supermarket operator in the U.S. today announced to buy Albertsons Companies, the country's second-largest supermarket company, in a deal valued at USD 24.6 billion that has been unanimously approved by the board of directors of both companies.
In times of soaring food and beverages prices, manufacturers of grocery goods expressed concerns about the resulting market concentration which is likely to draw intense scrutiny from federal regulators.
Kroger operates more than 2,700 stores in the U.S., including Ralphs, Harris Teeter, Fred Meyer, and King Soopers. Albertsons likewise has almost 2,300 stores including Safeway and Vons. Together, both companies employ around 710,000 people and have sales of more than USD 200 billion.
In order to cope with the overlap largely in the western part of the U.S., the companies plan to spin off between 100 and 375 stores into a separate company.
The combined company will clearly lead the market, far ahead of other large supermarket operators in the United States like Ahold Delhaize USA (about USD 52 billion sales and 1,970 stores in 2020 according to data compiled by Supermarket News and IGD), Publix Super Markets (USD 45bn, 1,269 stores), Loblaw (USD 38bn, 2,439 stores), H-E-B (USD 32bn, 351 stores), Sobeys (USD 27bn, 1,933 stores), Aldi (USD 18bn, 2,070 stores) and Wakefern Food Corporation (USD 18bn, 363 stores).
Apart from the sole supermarket operators that stock up on groceries and household products it is worthwile to take also a look on the largest retailers that operate next to grocery stores, also mass, convenience, drug and dollar stores. The list is led by Walmart (USD 434bn, 5.342 stores), followed by Amazon (USD 236bn, 539 stores), Kroger (USD 133bn, 2.742 stores), Costco (USD 122bn, 559 stores), Walgreen Boots Alliance (USD 108bn, 9,021 stores), Target (USD 92bn, 1,897 stores), CVS (USD 91bn, 9,960 stores) and Albertson (USD 70bn, 2,277 stores).
“The combination [of Kroger and Albertson] creates a premier seamless ecosystem across 48 states and the District of Columbia, providing customers with a best-in-class shopping experience across both stores and digital channels,” Kroger today said in a press release.
"Albertsons Cos. brings a complementary footprint and operates in several parts of the country with very few or no Kroger stores. This merger advances our commitment to build a more equitable and sustainable food system by expanding our footprint into new geographies to serve more of America with fresh and affordable food and accelerates our position as a more compelling alternative to larger and non-union competitors,” said Rodney McMullen, Kroger Chairman and Chief Executive Officer, who will continue serving as Chairman and CEO of the combined company.
Market observers see the intended deal as a necessary step towards consolidating an industry that is facing the need to adapt to the digital transformation of society. In the future online and offline shopping services are expected to work more closely together, to enhance customer experience. One example is the Walmart GoLocal-Home Depot partnership in which Walmart delivers Home Depot orders of certain sizes.
Under the terms of the merger agreement, Kroger will acquire all of the outstanding shares of Albertsons Companies, Inc. common and preferred stock (on an as converted basis) for an estimated total consideration of USD 34.10 per share, implying a total enterprise value of approximately USD 24.6 billion, including the assumption of approximately USD 4.7 billion of Albertsons Cos. net debt.
Subject to the outcome of a store divestiture process, the cash component of the USD 34.10 per share consideration may be reduced by the per share value of a newly created standalone public company ("SpinCo") that Albertsons Cos. is prepared to spin off at closing in conjunction with the regulatory clearance process.
As part of the transaction, Albertsons Cos. will pay a special cash dividend of up to USD 4 billion to its shareholders. The cash component of the USD 34.10 per share consideration will be reduced by the per share amount of the special cash dividend, which is expected to be approximately USD 6.85 per share. This cash dividend will be payable on November 7, 2022, to shareholders of record as of the close of business on October 24, 2022.
The purchase price represents a premium of approximately 32.8% to the unaffected closing price of Albertsons Cos. common stock on October 12, 2022, and 29.7% to the 30-day volume-weighted average price.