The Kroger Co (NYSE:KR) has confirmed plans to acquire smaller US grocery rival Albertsons Companies Inc in a deal that values the company at $24.6 billion, one of the biggest deals in US grocery history.
In a statement on Friday, the two companies said Kroger will acquire Albertsons for $34.10 a share and assume about $4.7 billion of Albertsons’ net debt. They said the cash component of the deal could be reduced by the per-share value, subject to the outcome of a store divestiture process. As part of the transaction, Albertsons said it will pay a special cash dividend of up to $4 billion to its shareholders.
Kroger houses supermarket chains such as Fred Meyer, Ralphs and King Soopers. Boise, Idaho-based Albertsons includes the Safeway banner. Kroger is UK online supermarket and technology group Ocado Group PLC's biggest client.
READ: Ocado signs terms of deal struck with US supermarket chain Kroger
Kroger and Albertsons are expect to sell overlapping stores as part of the deal to help win regulatory approval, The Wall Street Journal reported on Thursday when reports of merger talks emerged.
The merger of the No. 1 and 2 standalone US grocers could provide the combined firm with a bigger lever in negotiations with consumer-product makers at a time of steep price hikes, and help them compete with behemoth Wal-Mart Inc and Amazon.com Inc-owned Whole Foods.
Kroger and Albertsons have roughly 8% and 5% of the US grocery market, respectively, according to data from Euromonitor, while roughly 25% of all dollars spent on groceries in the US are forked out at Walmart.
Meanwhile, Michael Pachter, an analyst at Wedbush Securities, has estimated that Amazon has taken about $4 billion in market share from Kroger and Albertsons in the past two years, small relative to an $800 billion grocery market but a threat nonetheless.
Contact the author at jon.hopkins@proactiveinvestors.com