Kroger, Albertsons Agree to Merge
Highlights
- Kroger is the second-largest grocer by market share in the U.S., behind Walmart, and Albertsons Cos. is fourth, following Costco.
- Kroger chairman and CEO Rodney McMullen and CFO Gary Millerchip will continue in their roles at the combined company.
- The transaction is expected to close in early 2024.
Following reports that The Kroger Company and Albertsons Companies were in talks a day earlier, the grocery giants on Oct. 14 revealed they have entered a definitive agreement to merge.
Albertsons' 24 banners (including Safeway, Jewel-Osco, Vons, Tom Thumb, Acme and Shaw’s) will join Kroger’s 20-some banners (including Fred Meyer, Harris Teeter, Ralphs, King Soopers and Mariano’s).
The combined companies will establish a national footprint and unite around Kroger's “Purpose to Feed the Human Spirit” mission, aiming to expand customer reach and improve proximity to deliver groceries to roughly 85 million households.
Under the terms of the agreement, which was unanimously approved by the boards of directors of both companies, Kroger will acquire all of the outstanding shares of Albertsons’ common and preferred stock for an estimated $34.10 per share, implying a total enterprise value of about $24.6 billion, including Albertsons roughly $4.7 billion in net debt.
Together, Albertsons 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. The combined company’s footprint will span 48 states and the District of Columbia, including both stores and digital channels.
Kroger’s Investment Plans
Post close, Kroger plans to invest about $500,000 in reducing costs for shoppers, about $1.3 billion into Albertsons stores to enhance the customer experience and $1 billion to further raise associate wages, training and benefits. Since 2018, Kroger has invested an incremental $1.2 billion in associate compensation and benefits.
Leadership
Kroger chairman and CEO Rodney McMullen will continue in his role at the combined company, which he says will leverage “the strengths of each company while maintaining and enhancing each organizations' distinctive banners and storied histories.”
Additionally, Kroger’s Gary Millerchip will continue in his role as chief financial officer of the combined company.
Merger Details
- Utilize Kroger's “End-to-End Fresh” initiative across a broader network to enhance the joint company’s supply chain and deliver fresh products more efficiently.
- Bring together Kroger's “Fresh for Everyone” strategy and Albertsons' “Customers for Life” strategy to expand the combined company’s portfolio of fresh products and shelf life as well as accelerate the penetration of its Fresh portfolio.
- Create a broader selection of private-label products to relieve inflationary pressures for shoppers. The combined portfolio will include roughly 34,000 total private-label products across premium, natural and organic, and opening price point brands.
- Offer an enhanced personalized experience. The combined company will have comprehensive first-party data repositories, leveraging Kroger's data science capabilities from its 84.51° subsidiary to develop a stronger loyalty program and offer more relevant recommendations and promotions, including personalized recommendations for healthier alternatives as part of Kroger's “Food as Medicine” initiative.
- Share operational learnings across both large and small store formats through a larger distribution network of customer fulfillment facilities and capabilities, and an expanded pickup footprint.
- Power continued progress toward shared ESG initiatives. Both companies have sustainability programs and a range of initiatives focused on responsible corporate stewardship, including those focused on increasing workforce diversity and fighting food insecurity. Albertsons' sustainability program and resources will accelerate Kroger's "Zero Hunger | Zero Waste" social and environmental impact plan to create a more equitable and sustainable food system.
- Drive additional traffic to stores and digital channels. The addition of Albertsons' portfolio expands Kroger's core supermarket, fuel and pharmacy businesses. On a combined basis, the companies delivered about $210 billion in revenue, $3.3 billion in net earnings and $11.6 billion of adjusted EBITDA in fiscal year 2021.
- Accelerate alternative profit businesses including retail media. The combined company will be able to reach an expanded national audience, fueling growth in areas like retail media, Kroger personal finance and customer insights. With the addition of Albertsons Media Collective, Kroger can enhance its services to media clients and provide more targeted solutions and Kroger’s revenue streams.
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Store Divestitures
Kroger and Albertsons also expect to make store divestitures. Subject to the outcome of the divestiture process, Albertsons is prepared to establish a subsidiary dubbed SpinCo that would be spun-off to Albertsons shareholders immediately prior to merger closing and operate as a standalone public company. Kroger and Albertsons will work together to determine what stores would comprise SpinCo, which is estimated to comprise 100-375 stores. Kroger and Albertsons will provide additional details on SpinCo prior to closing.
Closing
The transaction is expected to close in early 2024. Kroger has $17.4 billion of fully committed bridge financing in place from Citi and Wells Fargo.
"Albertsons Cos. brings a complementary footprint and operates in several parts of the country with very few or no Kroger stores,” McMullen said in the release. “… As a combined entity, we 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."
McMullen added, "Importantly, the merger secures union jobs and we will continue to work with local unions across America to serve our communities."