Grocery giant Kroger Co. announced its planned acquisition of rival Albertsons Companies, Inc. in a blockbuster deal valued at $24.6 billion. The merger would combine the two largest operators of stores dedicated to groceries. Together, the companies employ 710,000 individuals in nearly 5,000 stores across 48 states and the District of Columbia. The purchase price represents a 32.8% premium over the closing price of Albertsons’s shares on October 12, two days prior to the transaction’s announcement.
The companies’ joint press release touts the deal for combining “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. Through a family of well-known and trusted supermarket banners, this combination will expand customer reach and improve proximity to deliver fresh and affordable food to approximately 85 million households with a premier omnichannel experience.” Kroger’s has long grown via acquisition and includes banner companies Fred Meyer, Ralphs, and King Soopers while Albertsons’s subsidiaries include Safeway, Acme, and Tom Thumb.
Although the grocers’ combine sales represent 16% of the market, they still lag Walmart’s dominate position in the grocery space, with the behemoth’s 20.9% market share including sales of subsidiaries Sam’s Club and BJ’s Wholesale.
The deal already contemplates regulatory scrutiny, stating “In connection with obtaining the requisite regulatory clearance necessary to consummate the transaction, Kroger and Albertsons Cos. expect to make store divestitures.” Analysts anticipate a lengthy regulatory approval process, as the Biden Administration’s more aggressive antitrust policy has significantly increased enforcement activity.
In order to meet regulatory approval, the companies have already formulated a plan: they announced they are willing to spin off up to 650 of their stores. As analysts put it, “if they cannot find buyers they have an unusual spin-off structure up their sleeves:” because a divestiture of so many stores would typically take many months, they companies contemplate accelerating the move – and regulatory approval along with it – by divesting the stores into a new company owned by Albertsons’s shareholders. The companies expect the merger to close in early 2024.
According to Matterhorn’s M&A database, which harnesses both AI and attorneys to digest the granular deal points of publicly announced transactions, Kroger was advised by law firms Weil, Gotshal & Manges LLP and Arnold & Porter Kaye Scholer LLP. Albertsons was advised by law firm Jenner & Block LLP and White & Case LLP.