By Senad Karaahmetovic
Kroger (NYSE:KR) announced today it has agreed to buy Albertsons (NYSE:ACI) for $34.10 per share in a deal valued at $24.6 billion. This way, the second-largest grocer by market share in the States merged with the fourth largest.
ACI shares closed over 11% yesterday on news about the potential deal. The purchase price reflects a premium of nearly 33% compared to the closing price of Albertsons stock on Wednesday. The stock is now down over 3.5% in pre-open Friday while Kroger shares are down 2.9%.
"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, who will continue serving as Chairman and CEO of the combined company.
Kroger said the new company will have around $1 billion of annual synergies while the deal will be double-digit accretive to earnings by year four. Moreover, the combined company will employ over 700,000 people and operate nearly 5,000 stores.
"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 Board of Directors.
Kroger plans to invest about $500 million in savings from synergies to "reduce costs for consumers." On the other hand, Albertsons expects to pay a special cash dividend of up to $4 billion to its shareholders.
Here's what some Wall Street analysts had to say about the KR-ACI deal yesterday when the news broke.
Telsey Advisory Group's analysts: "We like the deal as the combined company could be more productive and profitable than either of them individually, although we are concerned about the regulatory scrutiny and the approval process, given the combined company could represent about mid-teens market share in the US grocery space, and even higher in select regional markets."
BMO analysts: "Given that we are in a rapidly rising higher interest rate environment, possibly heading into a recession and possibly nearing peak food inflation, this could be a tough time to go into a higher leverage situation—particularly when we assume that Kroger has likely had a look at ACI assets in the past."