With expansion plans in key south-eastern and mid-Atlantic
states, one of the largest grocery retailers
The Kroger Co.
) has announced its decision to acquire all the shares of
Harris Teeter Supermarkets Inc.
) for $2.44 billion in cash. Per the deal, Kroger will pay $49.38
for each Harris Teeter share and will assume the latter's
outstanding debt of about $100 million.
The deal has been approved by the boards of both companies.
However, Harris Teeter has yet to receive shareholder
Kroger will finance the deal with debt, and will therefore
allocate some free cash flow to reduce its current debt burden in
the subsequent quarters. Kroger expects net accretion to earnings
per share in the range of 6 - 9 cents in year-one after the
After the completion of the deal, Harris Teeter will become a
subsidiary of Kroger. It will retain Harris Teeter's senior
management and its headquarters at Matthews, NC. Kroger will not
sell any of the Harris Teeter stores until there is an overlap in
any of the Harris Teeter's markets.
Kroger is impressed with Harris Teeter's strong management
team and variety of store formats located in high-growth markets.
Harris Teeter operates stores in the Carolinas, Virginia,
Maryland, Tennessee, Delaware, Florida, Georgia and the District
of Columbia. The bulk of its stores are in North Carolina.
Harris Teeter's fresh and prepared foods section is also
expected to allow Kroger to expand its food business. Kroger also
expects to benefit from Harris Teeter's online shopping
The deal will be a strategic fit for Kroger. It will provide
the company with an opportunity to expand its footprint in
several attractive and high-growth markets including Delaware,
Florida, Maryland and Washington, DC, where Kroger currently does
not have a presence. Kroger will also get hold of Harris Teeter's
distribution centers for grocery, frozen and perishable foods in
Greensboro and Indian Trail, NC and a dairy facility in High
However, it is speculated that Kroger is undervaluing Harris
Teeter. Harris Teeter thus have an option to re-consider the deal
to provide best value to its shareholders.
Kroger's acquisition of Harris Teeter is the second biggest
deal in the U.S. grocery industry in 2013 and the second-largest
acquisition for Kroger after its purchase of Fred Meyer Inc for
$13.89 billion in 1999.
Notably, the U.S. grocery industry has been consolidating from
quite some time as chains like Harris Teeter have struggled to
maintain market share against big retailers, dollar stores as
well as drugstores. Retailers like
) are also selling off their assets.
In June 2013, Safeway agreed to sell its Canadian operations
to Sobeys operator Empire Co Ltd while Supervalu struck a $3.3
billion deal to reduce debt by selling five of its chains to an
investor group led by Cerberus Capital Management LP in Jan
We believe that the Kroger-Harris Teeter deal will provide
excellent value in an increasingly competitive market. The
combined business is expected operate 2,631 supermarkets in 34
states and the District of Columbia, with over 368,300 employees.
Kroger holds a Zacks Rank #2 (Buy).
HARRIS TEETER (HTSI): Free Stock Analysis
KROGER CO (KR): Free Stock Analysis Report
SUPERVALU INC (SVU): Free Stock Analysis
SAFEWAY INC (SWY): Free Stock Analysis Report
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