Research. It's not just regulators that could scuttle the merger, though. The Kroger and Albertsons Merger Must Be Stopped A customer shops in a Kroger grocery store on July 15, 2022 in Houston. But the industrys future will depend, as always, on price, selection, convenience, location, service, and of course, customer loyalty. That is on top of the $1.5 billion in profits theyve already made and the $3 billion from their share of the dividend when it is paid. This included Cerberus, a private equity firm that is a major shareholder in Albertsons and stands to see substantial payouts through dividends and even more substantial payouts if the merger eventually goes through. Appendix: A lot, actually. Both Kroger and Albertsons Cos. are anchored by shared values focused on ensuring associates, customers and communities thrive. 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. Kroger, the parent company of Fred Meyer, and Albertsons, parent of Carrs Safeway, announced plans to merge last month. Delivering Quality, Value, Convenience and Choice for Customers, Continuing Track Record of Investments Across Lowering Prices, Enhancing the Customer Experience, and Increasing Associate Wages and Benefits, Strengthens Kroger's Value Creation Model to Drive Profitability and Enhance Shareholder Returns, Albertsons Companies Shareholders Expected to Receive Total Consideration Valued at $34.10 Per Share, Kroger to Host Conference Call at When the large power buyers demand full orders, on time and at the lowest cost, it effectively causes the water-bed effect, said Michael Needler Jr., the president and chief executive of Fresh Encounter, a chain of 98 grocery stores based in Findlay, Ohio. ", Accelerates Kroger's Go-to-Market Strategy. Kroger expects to continue to have a solid balance sheet supported by strong free cash flow of the combined business. CINCINNATI and BOISE,Idaho, Oct. 14, 2022 /PRNewswire/ -- Kroger (NYSE: KR) and Albertsons Companies, Inc. (NYSE: ACI) today 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 and unite around Kroger's Purpose to Feed the Human Spirit. Downtown Cincinnati-based Kroger (NYSE: KR), the nation's largest operator of traditional supermarkets, and Albertsons, agreed Oct. 13 to the $24.6 billion acquisition which comes to $34.10 per. Loblaw's T&T Supermarkets maps out expansion | Supermarket News 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. Publix is a huge player in the South, and Grocery Outlet is big in the West. Other complicating factors include possible legal actions and the fact that the two supermarket chains are largely unionized, per CNN. There's a big problem with the Kroger-Albertsons supermarket merger Additional Information About Albertsons Companies and Where to Find It. Betting on the outcome of a merger or acquisition is always tricky business. EBITDA Reconciliations1. Dozens of Oregon grocery stores owned by Kroger Co. (Fred Meyer and QFC) and Albertsons Cos. (Albertsons and Safeway) are located near other stores and could be considered redundant if the chains . Consumer advocates speculated that the merging of the two supermarket giants would lead to increased prices in a time of already rampant food inflation, and democratic party senators Bernie Sanders and Elizabeth Warren both publicly backed the blocking of the acquisition by federal regulators, according to CNN Business. The ability of Kroger and Albertsons Companies to achieve the goals for the proposed transaction may also be affected by their ability to manage the factors identified above. There could still be some winners among smaller players who find a space to thrive. The forward-looking statements by Kroger and Albertsons Companies included in this press release speak only as of the date the statements were made. These statements are based on the assumptions and beliefs of Kroger and Albertsons Companies management in light of the information currently available to them. Albertsons Companies is committed to helping people across the country live better lives by making a meaningful difference, neighborhood by neighborhood. Kroger, the second largest grocery store chain, purchased the fourth largest, Albertsons, for an estimated total enterprise value of $24.6 billion, the company announced in a news release Friday. Given the similarities in the culture and values at Kroger and Albertsons Cos., I am confident that the combination will also have a positive impact on our associates and the communities we are proud to serve. The buyout group, which owns 73 percent of the company, will receive the biggest share of the dividend, or $3 billion, of which $2.5 billion will come from cash and about $1.5 billion will be borrowed and put on Albertsons balance sheet. The Kroger-Albertsons mega-merger could redraw the national map in terms of market share and other ways as consolidation continues. Kroger-Albertsons likely would close or divest of some of its own overlapping stores, possibly in response to anti-trust regulations. Kroger looks forward to bringing the best of Albertsons Cos.' own omnichannel capabilities to more customers to improve the shopping experience. Kroger and Albertsons Companies are unable to provide a full reconciliation of the non-GAAP measures used in the forward-looking measures without unreasonable effort because it is not possible to predict with a reasonable degree of certainty the information necessary to calculate such measures on a GAAP basis because such information is dependent on future events that may be outside of Kroger's and Albertsons Companies' control. . Albertsons Companies is committed to helping people across the country live better lives by making a meaningful difference, neighborhood by neighborhood. The per share cash purchase price payable to Albertsons Cos. shareholders in the merger would be reduced by an amount equal to (i) three times four-wall adjusted EBITDA for the stores contributed to SpinCo divided by the number of Albertsons Cos. common shares (including common shares issuable upon conversion of Albertsons Cos.' preferred stock) outstanding as of the record date for the spin-off plus (ii) the per share amount of a special pre-closing cash dividend of up to $4 billion payable to Albertsons Cos. shareholders, which is expected to be approximately $6.85 per share. An on-demand replay of the webcast will be available at approximately 1:00 p.m. Kroger-Albertsons Merger Faces Long Road Before Approval Albertsons went public in the early months of the pandemic, but its offering was lackluster. For the buyout firms and other investors, which had about $2 billion invested in total in the various grocery store acquisitions, their 73 percent stake in Albertsons would be valued at more than $9 billion. Kroger and Albertsons Companies Announce Definitive Merger Agreement Company Release - 10/14/2022 Download the PDF versionPDF Format (opens in new window) Establishes National Footprint to Serve America with Fresh, Affordable Food for Everyone Combines Two Companies with Shared Values to Unite Around Kroger's Purpose to Feed the Human Spirit We may see mega-mergers create superpowers in the supermarket sector. Opposition to Albertsons-Kroger merger continues Publix caps year of new territory with sound Q4 results . However, as The New York Times noted at the time of the initial announcement, the deal is by no means a certainty, even if it's okayed by regulators. In any case, the chains' combined grocery market share would fall short of that of Walmart, which has stores within 10 . We believe this transaction will lead to faster and more profitable growth and generate greater returns for our shareholders. Kroger A Look Into Why The Kroger-Albertsons Merger Hasn't Happened Yet. The merger of Kroger and Albertsons would put control of the grocery industry into the hands of [+] three companies, which together would represent more than half of the sector by revenue. Kroger and Albertsons merger: What lies ahead? As grocery chains struggled to compete against the big-box behemoths, consolidation happened and private-equity firms moved in, sometimes with disastrous results. Anyone can read what you share. 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. Kroger could leverage Albertsons successful digital strategy investments to help implement similar initiatives for their own online services, according to Numerator.com. ", Mr. McMullen added, "This transaction is a testament to the passion and commitment of both Albertsons Cos. and Kroger associates. Albertsons announced the. Both Kroger and Albertsons Cos. are anchored by shared values focused on ensuring associates, customers and communities thrive. 1Pro forma results presented in this presentation represent the combined Kroger and Albertsons FY 2021 results and are not intended to represent pro forma financials under Section 11 of Regulation S-X under the Securities Exchange Act of 1934, as amended.2Transformation costs primarily include costs related to store and business closure costs and third party professional consulting fees associated with business transformation and cost saving initiatives.3Includes costs related to closures of operating facilities and third-party consulting fees related to strategic priorities and associated business transformation.4Related to conversion activities and related costs associated with integrating acquired businesses. The financial implications of the deal are enormously complex and complicated further by Albertsons existing debt, which, per Seeking Alpha, currently exceeds $13 billion dollars. ET Today, October 14, 2022. A Kroger-Albertsons merger would spark a fresh wave of mergers and acquisitions as companies seek to keep up, analysts predict. According to Numerator.com, Albertsons has been growing e-commerce sales rapidly with more households shopping online and using its successful click & collect strategy.. The ability of Kroger and Albertsons Companies to achieve the goals for the proposed transaction may also be affected by their ability to manage the factors identified above. Kroger and Albertsons together in fiscal 21 racked up $210 billion in revenue and $3.3 billion in net earnings, according to Supermarket News. Supporting and investing in our associates is foundational to both of our organizations and will continue to be a critical pillar of our success. "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. The sky-high profits also attracted a suitor. Where Kroger and Albertsons Grocery Stores Overlap "An incremental $1.3 billion will also be invested into Albertsons Cos. stores to enhance the customer experience. That could be another $4 a share, which means, at the end of the day, if the deal goes forward, shareholders could receive $23 a share by our estimate.. Such statements are indicated by words or phrases such as "accelerate," "create," "committed," "confident," "continue," "deliver," "driving," "expect," "future," "guidance," "positioned," "strategy," "target," "synergies," "trends," and "will." Kroger-Albertsons merger: Two of the largest supermarkets in America Kroger-Albertsons merger worries for Kraft, Mondelez on Crain's Daily Albertsons announced it would pay shareholders about $4bn in special dividends as part of the merger agreement, which would see Kroger spending $24.6bn to acquire Albertsons, with. ", "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 Cos. Board of Directors and Chief Executive Officer of Cerberus Operations. Importantly, the merger secures union jobs and we will continue to work with local unions across America to serve our communities. That could occur in California, Texas, Washington, D.C. and/or Phoenix, among others. Here's a look at the number of stores Kroger and Albertsons each operate in those markets as of July 2022. or Walmart, which control only a few brands. In early 2022, a grocery store chain identified as Party A in securities filings emerged with an offer to buy Albertsons for $41 a share. Kroger and Albertsons Companies Announce Definitive Merger Agreement Kroger has invested an incremental $1.2 billion in associate compensation and benefits since 2018. The deal would go beyond food to include healthcare. Albertsons Companies is a leading food and drug retailer in the United States. T&T Supermarkets. Mergers like this could accelerate the use of technology such as big data and e-commerce in the F&B industry, feeding into an online sales boom. ET on October 14, 2022. 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. Opinions expressed by Forbes Contributors are their own. Albertsons wants to pay $4 billion to shareholders ahead of its proposed merger with Kroger, a move that would require the already debt-ridden company to borrow $1.5 billion. ET. Mitchell said the new entity would have more clout in dealing with farmers, food workers and local grocers. A customer shops inside an Albertsons Cos. grocery store in San Diego, June 22, 2020. The worlds biggest retailer may be looking over its shoulder soon. Arun Sundaram of CFRA Research expects Albertsons to divest 100 to 375 overlapping store locations. If the merger ultimately goes through, Kroger would control approximately 5,000 supermarkets nationwide, including Albertsons' subsidiaries such as Safeway and Ralphs. Net earnings attributable to The Kroger Co. Mar 02, 2023 . But as the potential buyer was going through due diligence and shortly after Albertsons financial advisers raised the idea of a multi-billion-dollar dividend payout to shareholders, the buyer walked away. In 2017, when Albertsons turned a small profit, the investment firms paid themselves a cash distribution of $250 million. ", The newly merged company said it "expects to invest $1 billion to continue raising associate wages and comprehensive benefits after close.". But the biggest winners in the $24.6 billion deal may be the private-equity giant Cerberus and a group of investors. Steven Peterson. Michael Needler Jr., who runs Fresh Encounter, a chain of 98 grocery stores, referred to the water-bed effect of giants like Albertsons and Kroger. See the Appendix for a reconciliation of historical non-GAAP measures. Its only natural for them to want to seek an exit., Kroger-Albertsons Merger Faces Long Road Before Approval, https://www.nytimes.com/2023/01/23/business/kroger-albertsons-merger.html. 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. "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. This press release contains certain statements that constitute "forward-looking statements" within the meaning of federal securities laws, including statements regarding the effects of the proposed transaction. Although Kroger and Albertson's are the largest grocery-only companies in the country, they are falling behind in online, the key change happening to the industry. Kroger has a track record of successful integrations that combine the strengths of each company while maintaining and enhancing each organizations' distinctive banners and storied histories. The combined company expects to invest $1 billion to continue raising associate wages and comprehensive benefits after close. Kroger will host a conference call to discuss the transaction tomorrow, October 14, 2022 at 8:30 a.m. The Kroger-Albertsons mega-merger would create a company with about 5,000 U.S. stores, a close second to Walmarts 5,335 in the United States. Phil Weiser begins listening tour on possible Kroger-Albertsons merger Last fall, Kroger announced it agreed to purchase Albertsons in a $24.6 billion supermarket merger a move that would have nationwide impacts on consumers. Kroger, the second largest grocery store chain, purchased the fourth largest, Albertsons, for an estimated total enterprise value of $24.6 billion, the company announced in a news release Friday. ACI Kroger and Albertsons Companies Announce Definitive Merger Agreement October 14, 2022 Establishes National Footprint to Serve America with Fresh, Affordable Food for Everyone Combines Two Companies with Shared Values to Unite Around Kroger's Purpose to Feed the Human Spirit Kroger and Albertsons, which is based in Boise, Idaho, said Friday that they expected to close the deal in early 2024, and that Kroger would pay Albertsons $600 million if the merger fell apart . Neither Kroger nor Albertsons Companies assumes the obligation to update the information contained herein unless required by applicable law. The two grocery store chains and investment firms involved insist the deal isnt about a payday for investors. 24/7 coverage of breaking news and live events. Kroger, which owns City Market, announced plans to acquire Albertsons, which owns Safeway, for nearly $25 billion last October. Kroger and Albertsons executives defend proposed merger at hearing SpinCo would be spun-off to Albertsons Cos. shareholders immediately prior to merger closing and operate as a standalone public company. But some believe scale could lead to backlash, as some customers adopt a small-is-beautiful approach, believing smaller stores are closer to the customer. Albertsons profits nearly quadrupled to $1.6 billion in 2021 from $466 million in 2019. They push down, and the consumer packaged goods companies have no option but to supply them at their demands, leaving rural stores with higher costs and less availability to products.. The deal is likely to . Thats where the most uncertainty lies how many stores will they have to divest? said Arun Sundaram, an equity analyst at CFRA Research. When completed, the information statement will be mailed to Albertsons Companies' stockholders. Overall, 48% of Albertsons approximately 2,270 stores are located within 3 miles of a Kroger-owned supermarket, Creditntell said. Kroger-Albertsons Merger Faces Long Road Before Approval Consumer advocates, unions and independent grocers are against a deal that would join Kroger and Albertsons, and be lucrative for. The Cincinnati-based company is the second-largest grocer by market share in the United States, behind. Kroger has a long track record of lowering prices, improving the customer experience and investing in its associates and communities. As part of the transaction, Albertsons Cos. will pay a special cash dividend of up to $4 billion to its shareholders. Various uncertainties and other factors could cause actual results to differ materially from those contained in the forward-looking statements. ET Today, October 14, 2022. Kroger and Albertsons Companies are unable to provide a full reconciliation of the non-GAAP measures used in the forward-looking measures without unreasonable effort because it is not possible to predict with a reasonable degree of certainty the information necessary to calculate such measures on a GAAP basis because such information is dependent on future events that may be outside of Kroger's and Albertsons Companies' control. The unavailable information could have a significant impact on Kroger's and Albertsons Companies' GAAP financial results. Closings can lead to some openings for competitors, giving them room to grow. In October, Kroger . Albertsons Companies will prepare an information statement on Schedule 14C for its stockholders with respect to the approval of the transaction referenced herein. In addition to company stores, Albertsons operates Safeway, Vons, Jewel-Osco, Shaws, Acme, Tom Thumb, Randalls, United Supermarkets, Pavilions, Star Market, Haggen, Carrs, Kings Food Markets and Balduccis Food Lovers Market. Related: U.S. Senate to put Kroger-Albertsons merger under microscope Based on fiscal 2021 data, Kroger and Albertsons combined generated about $210 billion in revenue, $3.3 billion in net . "The outrage over the payout and the deal is overblown: Albertsons and Kroger are in an industry with razor-thin margins. Cerberus moved into the grocery business 17 years ago when it acquired 655 struggling stores owned by Albertsons sprinkled around Florida, Texas and Northern California for $350 million in equity. This merger advances our commitment to build 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.". Corporate buyout specialists generally raise money from big investors, like pension funds for state employees, teachers, police officers and firefighters, and then buy undervalued or underappreciated companies. In 2021, along with the Albertsons Companies Foundation, the Company contributed nearly $200 million in food and financial support, including approximately $40 million through our Nourishing Neighbors Program to ensure those living in our communities have enough to eat. This is a BETA experience. Kroger plans to buy Albertsons in a deal valued at $24.6 billion, a merger that would combine the two largest grocery-store chains in the U.S., the companies said on Friday. IGA, Inc., is an American chain of grocery stores that operates in more than 41 countries. Citi and Wells Fargo Securities, LLC are serving as financial advisors and Weil, Gotshal & Manges LLP and Arnold & Porter Kaye Scholer LLP are serving as legal counsel to Kroger. If a merger does . 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, Inc. ("Albertsons Cos.") 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. Albertsons shareholders expect to receive $34.10 per share. Kroger buys Albertsons in massive supermarket merger, what it means for We are, across our family of companies, nearly half a million associates who serve over 11 million customers daily through a seamless shopping experience under a variety of banner names. Later, an attempt in 2018 to cash out of the investment fell through when a proposed reverse merger with Rite Aid was scuttled after the drugstore chains shareholders opposed it. Adjustment for pension plan withdrawal liabilities, Adjustment for company-sponsored pension plan settlement charges, Adjustment for loss (gain) on investments, Adjustment for Home Chef contingent consideration, (Gain) loss on interest rate and commodity hedges, net, Gain on property dispositions and impairment losses, net, Government-mandated incremental COVID-19 pandemic related pay5, Amortization of debt discount and deferred financing costs, Amortization of intangible assets resulting from acquisitions, Combined Plan and UFCW National Fund withdrawal6, Tax impact of adjustments to Adjusted net income. To learn more about us, visit our newsroom and investor relations site. 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. 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. Kroger Chairman and CEO Rodney McMullen says the deal brings together two purpose-driven organizations to deliver superior value to customers, associates, communities and shareholders. It could be part of a consolidation wave as companies continue to grow by merger. Many of these stores operate in small-town markets and belong to families that manage them. Also includes expenses related to management fees paid in prior fiscal years in connection with acquisition and financing activities.5Represents incremental pay that is legislatively required in certain municipalities in which Albertsons operates.6Related to the Combined Plan during the fourth quarter of fiscal 2021.7Miscellaneous adjustments include non-cash lease-related adjustments, lease and lease-related costs for surplus and closed stores, net realized and unrealized gain on non-operating investments, certain legal and regulatory accruals and settlements, net and other (primarily includes adjustments for pension settlement gain, unconsolidated equity investments and certain contract terminations). Establishes National Footprint to Serve America with Fresh, Affordable Food for Everyone, Combines Two Companies with Shared Values to Unite Around Kroger's Purpose to Feed the Human Spirit, Accelerates Kroger's Go-to-Market Strategy and Positions Combined Company as a Premier Omnichannel Food Retailer, Importantly, the merger secures union jobs and we will continue to work with local unions across America to serve our communities. The merger is also still being challenged by union leaders from the United Food and Commercial Workers, notes Seeking Alpha. 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