In a move that will expand its presence in the Southeast and Mid-Atlantic regions, Kroger Co. will acquire Harris Teeter Supermarkets Inc. in a deal valued at about $2.5 billion.


Kroger Co., Harris Teeter Supermarkets Inc., David Dillon, Michael Schlotman,


















































































































































































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Inside This Issue - News

A compelling deal

July 22nd, 2013

CINCINNATI – In a move that will expand its presence in the Southeast and Mid-Atlantic regions, Kroger Co. will acquire Harris Teeter Supermarkets Inc. in a deal valued at about $2.5 billion.

The transaction, which will be structured as a merger, has been approved by both companies’ boards of directors.

Under the terms of the definitive merger agreement, Kroger will purchase all outstanding shares of Harris Teeter stock for $49.38 per share in cash plus the assumption of about $100 million of Harris Teeter’s outstanding debt. Kroger plans to finance the deal with debt.

The purchase price represents a premium of 33.7% on the closing price of Harris Teeter shares as of January 18, when the company first reported that it was seeking a buyer. However, it is just 1.8% higher than Harris Teeter’s closing price of $48.52 on July 8, the day before the Kroger acquisition was reported, because the grocer’s share price has increased by 31% since the January announcement.

"We are excited to welcome Harris Teeter to the Kroger family," said David Dillon, Kroger’s chairman and chief executive officer. "Harris Teeter is an exceptional company with a great brand, friendly and talented associates, and attractive store formats in vibrant markets run by a first-class management team. They share our customer-centric approach to everything we do — from store format and merchandising to innovative loyalty programs.

"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."

During a conference call with analysts, Kroger chief financial officer Michael Schlotman noted that the Harris Teeter store footprint is highly complementary to Kroger’s. The merger will provide Kroger an upscale chain of 212 stores in eight states — North Carolina, Virginia, South Carolina, Maryland, Tennessee, Delaware, Florida, Georgia — and the District of Columbia. Many of the stores are located in markets with populations growing faster than the national average, including vacation destinations and university towns.

For example, of the 138 stores Harris Teeter operates in North Carolina, 55 are in the Charlotte market. It fields 31 stores in the Washington, D.C., area, the nation’s seventh-largest grocery market. Kroger also gains distribution centers for grocery, frozen food and perishables in Greensboro and Indian Trail, N.C., as well as a dairy facility in High Point, N.C.

Schlotman noted that there will be minor overlap in the Raleigh, N.C.; Charlottesville and Hampton Roads, Va.; and Nashville markets. "We are making plans now as to how we will operate in each of these markets over the long term," he said.

After the merger, Harris Teeter will operate as a subsidiary of Kroger under the leadership of key members of Harris Teeter’s senior management. There are no plans to close stores, and the Harris Teeter headquarters in Matthews, N.C., will continue to operate.

In its 2012 fiscal year, which ended October 2, 2012, Harris Teeter reported earnings from continued operations of $99.9 million, or $2.04 per diluted share, on sales of $4.54 billion. Kroger expects the transaction to deliver net accretion to earnings of 6 cents to 9 cents per diluted share in the first full year after the merger, excluding transition and transaction expenses.

Management intends to use free cash flow to reduce the debt assumed to fund the merger, but will continue its quarterly dividend and share-repurchase programs. The merger will give Kroger a total of 2,631 supermarkets in 34 states and the District of Columbia.

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