Kroger (KR) and Albertsons ACI agreed to a $25 billion merger deal Friday that will create the country's biggest standalone grocery chain with nearly 5,000 stores and annual revenues of more than $200 billion.
Kroger said it would pay $34.10 per share for Boise, Idaho-based Albertsons, a 16% premium to the stock's closing price on Wall Street yesterday -- but 33% ahead of levels prior to reports of a potential deal -- valuing the group at around $24.6 billion, including the assumption of around $4.7 billion in debt.
Kroger also pledged to invest another $1.3 billion towards upgrading Albertsons stores -- which include brands such ACME, Safeway and Vons -- as and 'enhancing' the customer experience, as well as another $1 billion to improve benefits and wages for the group's employees.
"We are bringing together two purpose-driven organizations to deliver superior value to customers, associates, communities and shareholders," said Kroger CEO Rodney McMullen, who will run the combined group. "Albertsons 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," he added.
Albertsons shares were marked 7.4% lower in early trading following news of the merger agreement to change hands at $26.53 each, while Kroger fell 4.2% to $44.61 each.
McMullen's reference to the fact that Albertsons operates in markets with "very few or no Kroger stores" suggests the deal is likely to face scrutiny from U.S. officials, including the Federal Trade Commission.
The combination would not only create a grocery market giant, with more than $210 billion in annual sales -- topping third-ranked Costco Wholesale -- but also potentially limit consumer choice when food price inflation is running at its fastest pace in more than four decades.
Last month, Kroger posted stronger-than-expected second quarter earnings, while boosting its full-year profit forecast, as the country's biggest grocery store chain retained more value-focused shoppers amid a near-record surge in food price inflation.
Kroger said adjusted earnings for the three months ending in July came in at 90 cents per share, up 12.5% from the same period last year, on revenues of $34.6 billion
Looking into the 2023 fiscal year, which ends next February, Kroger said it sees full year earnings in the range of $3.95 to $4.05 per share, a 10 cent improvement from its prior guidance in June.
