The Kroger Company (KR) said Tuesday morning that it will pay $49.38 in cash for each share of Harris Teeter Supermarkets, Inc. (HTSI) under a definitive merger agreement to acquire the smaller supermarket operator. Including approximately $100 million in Harris Tweeter debt that Kroger will assume, the transaction is valued at about $2.5 billion.
The transaction price is a 33.7-percent premium to the closing price of Harris Teeter on January 18, the day news broke that the Matthew, North Carolina-based company was exploring strategic alternatives.
The boards of both companies have approved the agreement.
Kroger will finance the deal with debt. The company’s quarterly dividend and share repurchase plan will not be changed, according to today’s statement, which was released by both companies. Harris Tweeter will operate as a subsidiary of Kroger and there are no intentions to close stores, dismiss employees or change the name of the Harris Tweeter brand.
Kroger, one of the world’s biggest retailers and largest U.S. grocery chain, will get 212 stores located in the “attractive” southeast and mid-Atlantic markets and Washington, D.C. in the Harris Tweeter portfolio. Already with a strong foothold in the Midwest, Kroger will significantly broaden its presence to the east with the purchase. In fiscal 2012, Harris Tweeter generated about $4.5 billion in revenue.
Kroger is still playing second fiddle to Wal-Mart Stores, Inc. (WMT) as the largest retailer in the States. Wal-Mart sits atop the Fortune 500 with 2012 sales of $443.9 billion. Kroger, who is listed as #23, generated $96.8 billion in sales in 2012.
Net accretion to earnings per diluted share is expected in the range of 6 cents to 9 cents in the first full year after the merger, excluding transition and transaction expenses, according to Kroger. Annual cost savings are anticipated between $40 million to $50 million over the next three to four years, mostly because of Kroger’s scale.
“Harris Teeter has a long track record of creating shareholder value and this merger is the culmination of those efforts over many years,” said Thomas W. Dickson, chairman and chief executive of Harris Teeter.
Added David Dillon, chairman and chief executive of Cincinnati-based Kroger, “This is a financially and strategically compelling transaction and a unique opportunity for our shareholders and associates. We look forward to bringing together the best of Kroger and Harris Teeter while continuing to operate and grow the Harris Teeter brands.”
Upon closing, Kroger will operate 2,631 supermarkets and employ over 368,300 associates across 34 states and the District of Columbia.
Shares of Kroger have printed new all-time highs this month, closing on Monday at $36.19, only pennies from the record high of $36.29 made last week. That record has fallen in early Tuesday action, with shares ahead by about 2 percent at $36.83. Shares are up 43 percent so far in 2013 with the morning move.
Harris Teeter shares have skipped upward by about 1 percent to $49.00, also representing a new all-time high.
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