Kroger plans to buy Boise’s Albertsons, merging nation’s No. 1 & 2 traditional grocers
The grocery company Joe Albertson founded 83 years ago with a single supermarket in Boise’s North End may soon change hands again, this time via a merger with a bigger competitor.
Albertsons Companies Inc. and Kroger announced Friday that they have signed a pact to merge, with Kroger buying all of Albertsons’ stock. The news came one day after unidentified sources disclosed to Bloomberg the possible combining of the country’s two biggest traditional grocery companies into a single goliath.
Albertsons is Idaho’s largest company, with about a quarter million employees nationwide. It has 2,273 retail food and drug stores under 24 banners in 34 states, including dozens under the Albertsons banner in its native state. Kroger’s Fred Meyer unit, based in Portland, competes directly with them in the Boise area.
That competition is a problem for the companies, as their merger must pass an antitrust review by federal regulators. Anticipating that, the companies said they would spin off between 100 and 375 stores into a new company to alleviate concerns about anticompetitiveness.
They did not immediately say where those stores would be, but markets like Boise, where both have strong presences, are likely candidates. Both companies have stores in California and Washington, too.
“We believe this transaction will lead to faster and more profitable growth and generate greater returns for our shareholders,” said Rodney McMullen, the Kroger chairman and CEO, in a news release. McMullen will keep those roles in the combined company, which will continue under the Kroger name.
For Albertsons, the sale marks the completion of a review of strategic alternatives it announced in March and a culmination of a 16-year effort by Cerberus, a New York private equity firm that led a group of investment companies that still controls Albertsons, to make and keep Albertsons profitable for its investors.
The company doesn’t even need to hold a shareholder vote, because the holders of most of its shares agreed to the merger terms before the deal was announced. Albertsons began selling some stock to the public in June 2020, but Cerberus alone still held roughly 30% of its shares, according to previous reporting by The Wall Street Journal.
According to the companies’ news release:
The combined company would employ more than 710,000 people and operate nearly 5,000 stores in 48 states and the District of Columbia. Today they generate $210 billion a year in revenue and $3.3 billion in profit.
Kroger would buy all outstanding Albertsons shares for $34.10 in cash and other consideration, a price that values Albertsons at $24.6 billion. Albertsons would contribute $6.85 of that in special cash dividends totaling $4 billion. The purchase price may be reduced by the per-share value of the new spin-off.
The price represents a 32.8% premium to the price of Albertsons stock at Tuesday’s market closing.
Kroger would “invest” half a billion dollars in cost savings from synergies created by the merger into lower prices for customers. It would invest $1 billion “to continue raising associate wages and comprehensive benefits” for its workers.
“Albertsons Cos. shareholders holding more than a majority of Albertsons Cos.’ common stock have either delivered a written consent or committed to delivering a written consent approving the transaction no later than October 18, 2022 and Albertsons Cos. shareholders holding more than a majority of Albertsons Cos.’ preferred stock have already approved the transaction. No further action by Albertsons Cos.’ shareholders will be needed or solicited in connection with the merger.”
