Kroger in blockbuster deal to buy Albertsons
Kroger plans to team up with a rival in a deal that would combine the nation’s largest traditional supermarket company with a smaller rival to create a national footprint.
Kroger has agreed to buy Albertsons Companies for $34.10 a share in a deal valued at $24.6 billion. The deal includes approximately $4.7 billion of Albertsons’ net debt. The purchase price represents a premium of about 32.8% to Albertson’s closing price on Oct. 12.
“The combination 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 said in a press release.
Kroger is the second-largest grocer by market share in the United States, after Walmart. Costco is third, followed by Albertsons.
Kroger operates some 2,800 stores in 35 states. In addition to its namesake banner, other brands include Fred Meyer, Harris Teeter, Fry’s Food Stores, Ralphs, King Soopers and others. Albertsons has 2,273 stores in 34 stores with 24 banners that include Safeway, Acme, Vons, Jewel-Osco, Shaw's, its namesake brand and others.
Ken Fenyo, president of research & advisory at Coresight Research, noted that the deal will better position Kroger to compete with Walmart and even Amazon on a national scale. The merger would also lead to massive savings, as it would eliminate overlaps in stores, tech investments, marketing spend and so on, he added. (For more analysis of the deal, click here.)
The boards of both companies unanimously approved the agreement, but it will also need regulatory approval. The deal is expected to close in early 2024.
“Albertsons Cos. brings a complementary footprint and operates in several parts of the country with very few or no Kroger stores, said Rodney McMullen, Kroger chairman and CEO, who will continue serving in both roles of the combined company. “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.”
Together, the two firms currently employ more than 710,000 associates and operate a total of 4,996 stores, 66 distribution centers, 52 manufacturing plants, 3,972 pharmacies and 2,015 fuel centers. Kroger reported annual sales of $138 billion in fiscal 2021, while Albertsons' revenue was $72 billion last year.
Earlier this year, Albertsons launched a review of potential strategic alternatives. As part of the review, Albertsons engaged a third party to review the value of its real estate portfolio. It found that the total value of company-owned and ground-leased properties has increased approximately $2.5 billion to $13.7 billion, up from $11.2 billion in 2019.
"Today's announcement marks the successful outcome of the Board-led review of strategic alternatives Albertsons Cos. announced in February," said Chan Galbato, co-chair of the Albertsons Cos. board and CEO of Cerberus Operations. "This transaction with Kroger provides substantial value to shareholders and exciting opportunities for associates to be part of a combined organization with the ability to better support the lives and health of millions of Americans."
In statements on Friday, the National Grocers Association and the United Food and Commercial Workers International Union both expressed concerns about the deal.
“A merger of the nation’s top two grocery chains should raise serious questions about a single supermarket giant gaining unprecedented dominance over the nation’s food supply chain,” said Greg Ferrara, president and CEO, NGA. “A merger would not only put smaller competitors at an unfair disadvantage, but also increase anticompetitive buyer power over grocery suppliers, which ultimately would harm consumers. It is our expectation that this deal will receive rigorous scrutiny from federal antitrust enforcers.”