Kroger dedicates US$24.6bn to acquire Albertsons to form second largest supermarket chain

US – American retail company, Kroger, plans to cash out US$24.6 billion for the acquisition of the second-largest supermarket chain in North America, Albertsons.

This merger of the US grocery giants with combined sales of more than US$200bn will become the second to Albertsons, after a merger with Safeway in 2015, then unsuccessfully tried to merge with pharmacy chain Rite Aid in 2018 and eventually went public in 2020.

Under a “definitive agreement” approved by both boards of directors, Kroger will acquire all of Albertsons’ shares for US$34.10 each.

However, Kroger said the US$34.10 price tag may decrease “subject to the outcome of a store divestiture process” and the “per-share value of a newly-created standalone public company, SpinCo, that Albertsons is prepared to spin off at closing in conjunction with the regulatory clearance process”.

The deal is likely to draw intense scrutiny from federal regulators and critics as it would form a new supermarket colossus at a time of soaring food costs.

If the transaction becomes successful, the combined entity will control around 11.8% of the food and grocery market, still below Walmart’s 17.1%.

The two also face competition from Costco as well as Amazon, with its online delivery reach, and lately, dollar stores, the fastest-growing segment of U.S. retail.

Albertsons and Kroger employ more than 710,000 staff and operate 4,996 stores between them. Combined, they also have 66 distribution centers, 52 manufacturing plants, 3,972 pharmacies, and 2,015 fuel centers.

In a signal that they expect a similar requirement to an order by FTC to Albertsons and Safeway to sell 168 stores before being allowed to merge in 2015, Kroger and Albertsons said they would form a separate public company as a subsidiary to organize divested stores.

Kroger and Albertsons Cos. have agreed to work together to determine which stores would comprise SpinCo, as well as the Pro-forma capitalization of SpinCo.

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, and a strong balance sheet.

The companies also view SpinCo as a venture that will enable them to have a new focused allocation of capital and resources which will provide customers with continued value and quality service and associate with ongoing compelling career opportunities.

During the announcement, Kroger said it would “reinvest approximately half a billion dollars of cost savings from synergies to reduce prices for customers” and invest $1 billion to raise wages and benefits for workers.

In addition, Rodney McMullen, Kroger’s chairman, and CEO will hold the same positions at the combined company.

McMullen said in a statement that “this merger advances our commitment to building 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.

He noted that Kroger believes the transaction will lead to faster and more profitable growth and generate greater returns for its shareholders.

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