Kroger and Albertsons Companies announced that they have entered into a definitive agreement under which the companies will merge two complementary organizations with iconic brands and deep roots in their local communities to establish a national footprint.
Through a family of well-known and trusted supermarket banners, this combination will expand customer reach and improve proximity to deliver fresh and affordable food to approximately 85 million households with a premier omnichannel experience.
Under the terms of the merger agreement, which has been unanimously approved by the board of directors of each company, Kroger will acquire all of the outstanding shares of Albertsons Companies common and preferred stock (on an as-converted basis) for an estimated total consideration of $34.10 per share, implying a total enterprise value of approximately $24.6 billion, including the assumption of approximately $4.7 billion of Albertsons Cos. net debt, said Kroger in a press release.
Together, Albertsons Cos. and Kroger 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.
According to Kroger, 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. The combined company will drive profitable growth and sustainable value for all stakeholders.
Consistent with prior transactions, Kroger said it plans to invest in lower prices for customers and expects to reinvest approximately half a billion dollars of cost savings from synergies to reduce customer prices. An incremental $1.3 billion will also be invested into Albertsons Cos. stores to enhance the customer experience. Kroger will also build on its recent associate wages, training and benefits investments. The combined company expects to invest $1 billion to continue raising associate wages and comprehensive benefits after the close.
“We are bringing together two purpose-driven organizations to deliver superior value to customers, associates, communities, and shareholders,” said Rodney McMullen, Kroger Chairman and Chief Executive Officer. He will continue serving as Chairman and CEO of the combined company. “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 building 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.”
McMullen emphasized that as a combined entity, they will be better positioned to advance Kroger’s successful go-to-market strategy by providing an incredible seamless shopping experience, expanding Our Brands portfolio, and delivering personalized value and savings. “We’ll also be able to further enhance technology and innovation, promote healthier lifestyles, extend our health care and pharmacy network and grow our alternative profit businesses. We believe this transaction will lead to faster and more profitable growth and generate greater returns for our shareholders.”
Subject to the outcome of a store divestiture process, the cash component of the $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 $4 billion to its shareholders. The cash component of the $34.10 per share consideration will be reduced by the per share amount of the special cash dividend, which is expected to be approximately $6.85 per share. This cash dividend will be payable to shareholders of record on November 7, 2022, 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.
Mr. McMullen added, “As a combined company, we will build on our similar values to create a culture that embraces diversity, equity, and inclusion and fosters a best-in-class associate experience by enabling, supporting, and empowering our associates to unlock their full potential. Importantly, the merger secures union jobs, and we will continue to work with local unions across America to serve our communities. We look forward to bringing together the Albertsons Cos. and Kroger families to create new and exciting career opportunities for associates.”
The addition of Albertsons Cos.’ portfolio expands Kroger’s core supermarket, fuel, and pharmacy businesses, bolstering the combined company’s ability to drive additional traffic into stores and digital channels. The increase in customer traffic and data will, in turn power the combined company’s higher-growth, higher-margin alternative profit businesses to support continued reinvestment in the business. Combined, the companies delivered approximately $210 billion in revenue, $3.3 billion in net earnings, and $11.6 billion of adjusted EBITDA in fiscal year 20211.
“We have been on a transformational journey to evolve Albertsons Cos. into a modern and efficient omnichannel food, and drug retailer focused on building deep and lasting relationships with our customers and communities. I am proud of what our 290,000 associates have accomplished, delivering top-tier performance while furthering our purpose to bring people together around the joys of food and to inspire well-being. Today’s announcement is a testament to their success,” said Vivek Sankaran, CEO of Albertsons Cos.
“At Albertsons Cos., we are guided by an ambition to create customers for life. Together with Kroger, our combined iconic banners will be able to provide customers with even more value and greater access to fresh food and essential pharmacy services. Given the similarities in the culture and values at Kroger and Albertsons Cos., I am confident that the combination will also positively impact our associates and the communities we are proud to serve. We look forward to working together with Kroger to capture the compelling opportunities ahead.”
In connection with obtaining the requisite regulatory clearance necessary to consummate the transaction, Kroger and Albertsons Cos. expect to make store divestitures.
As described in the merger agreement and subject to the outcome of the divestiture process, Albertsons Cos. is prepared to establish an Albertsons Cos. subsidiary (SpinCo). SpinCo would be spun-off to Albertsons Cos. shareholders immediately before merger closing and operate as a standalone public company.
Kroger and Albertsons Cos. have agreed to work together to determine which stores would comprise SpinCo and the pro forma capitalization of SpinCo. The establishment of SpinCo, which is estimated to comprise between 100 and 375 stores, would create a new, agile competitor with quality stores, experienced management, operational flexibility, a strong balance sheet, and focused allocation of capital and resources to provide customers with continued value and quality service and associates with ongoing compelling career opportunities.