Combined company will operate nearly 5,000 stores

CINCINNATI  — Kroger Co. and Albertsons Cos. on Friday confirmed that they planned to merge, formally announcing a $25 billion deal that would combine the nation’s two largest supermarket operators into a single company that operates 4,996 stores, 66 distribution centers, 52 manufacturing plants, 3,972 pharmacies and 2,015 fuel centers. The combined company will operate in 48 states and the District of Columbia.

The combined operation would have grocery sales of nearly $190 billion, according to estimates by Insider Intelligence, which projects that Kroger will have grocery sales of 126.87 billion in 2022, representing about 9% of all U.S. grocery sales, and Albertsons will have sales of $62.69 billion, representing about 4.5% of U.S. grocery share. (Insider Intelligence notes that there is overlap in the share figures, as some consumers shop at both retailers.)

That total would still trail Walmart’s annual U.S. grocery sales, which some estimates have put at about $218 billion.

Even so, the deal will have to clear regulatory hurdles before it can proceed. The National Grocers Association (NGA), which represents independent grocers, has issued a statement decrying the proposed deal.

“A merger of the nation’s top two grocery chains should raise serious questions about a single supermarket giant gaining unprecedented dominance over the nation’s food supply chain,” said Greg Ferrara, NGA president and CEO. “A merger would not only put smaller competitors at an unfair disadvantage, but also increase anticompetitive buyer power over grocery suppliers, which ultimately would harm consumers. It is our expectation that this deal will receive rigorous scrutiny from federal antitrust enforcers.”

Kroger chief financial officer Gary Millerchip said during a conference call announcing the deal that he was optimistic about its approval.

“We are confident from the extensive work that we’ve done that we believe we have a clear path achieve regulatory approval with divestitures,” Millerchip said.

He pointed out that the merger deal includes a provision calling for the potential creation of a standalone company, called SpinCo, that would operate between 100 and 375 stores that Kroger and Albertsons would need to divest.

“We really see SpinCo as one option to be able to address those divestitures,” Millerchip added. “We think it’s a really clean option in the sense that that could potentially be a faster way to package up the strategy around divestitures and from a Kroger prospective, it gives us confidence in the level of price that we achieve for those stores.”

Kroger also contends that consumers will ultimately benefit from its merger with Albertsons, which will unite the combined company around Kroger’s Purpose to Feed the Human Spirit.

Rodney McMullin

“We are bringing together two purpose-driven organizations to deliver superior value to customers, associates, communities and shareholders,” said Rodney McMullen, Kroger’s chairman and chief executive officer, who will continue serving as chairman and CEO of the combined company. “Albertsons Cos. brings a complementary footprint and operates in several parts of the country with very few or no Kroger stores. This merger advances our commitment to build 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. As a combined entity, we will be better positioned to advance Kroger’s successful go-to-market strategy by providing an incredible seamless shopping experience, expanding Our Brands portfolio, and delivering personalized value and savings. We’ll also be able to further enhance technology and innovation, promote healthier lifestyles, extend our health care and pharmacy network and grow our alternative profit businesses. We believe this transaction will lead to faster and more profitable growth and generate greater returns for our shareholders.”

The merger agreement, which has been unanimously approved by the board of directors of each company, calls for Kroger to acquire all outstanding shares of Albertsons Cos. common and preferred stock (on an as-converted basis) for an estimated total consideration of $34.10 per share, implying a total enterprise value of approximately $24.6 billion, including the assumption of approximately $4.7 billion of Albertsons Cos. net debt.

The per share price is about 20% higher than Albertsons’ closing share price on Thursday, when news of a possible deal went public.

Albertsons Cos. CEO Vivek Sankaran also praised the proposed deal, calling it the culmination of “a transformational journey to evolve Albertsons Cos. into a modern and efficient omnichannel food and drug retailer focused on building deep and lasting relationships with our customers and communities,” adding that he considers the merger agreement a testament to the accomplishments of the company’s 290,000 associates.

Vivek Sankaran

“At Albertsons Cos., we are guided by an ambition to create customers for life,” Sankaran said. “Together with Kroger, our combined iconic banners will be able to provide customers with even more value and greater access to fresh food and essential pharmacy services. Given the similarities in the culture and values at Kroger and Albertsons Cos., I am confident that the combination will also have a positive impact on our associates and the communities we are proud to serve. We look forward to working together with Kroger to capture the compelling opportunities ahead.”

The deal also marks the successful outcome of a board-led review of strategic alternatives that Albertsons Cos., according to Chan Galbato, co-chair of the Albertsons Cos. Board of Directors and Chief Executive Officer of Cerberus Operations. “This transaction with Kroger provides substantial value to shareholders and exciting opportunities for associates to be part of a combined organization with the ability to better support the lives and health of millions of Americans,” he said.

McMullen added, “This transaction is a testament to the passion and commitment of both Albertsons Cos. and Kroger associates. Supporting and investing in our associates is foundational to both of our organizations and will continue to be a critical pillar of our success. Kroger has a track record of successful integrations that combine the strengths of each company while maintaining and enhancing each organizations’ distinctive banners and storied histories. As a combined company, we will build on our similar values to create a culture that embraces diversity, equity and inclusion and fosters a best-in-class associate experience by enabling, supporting and empowering our associates to unlock their full potential. Importantly, the merger secures union jobs and we will continue to work with local unions across America to serve our communities. We look forward to bringing the Albertsons Cos. and Kroger families together to create new and exciting career opportunities for associates.”