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CINCINNATI – Kroger Co. has agreed to buy 151-store Roundy’s Inc. for some $800 million, including debt. Kroger will purchase all outstanding shares of Roundy’s for $3.60 per share, a premium of about 65% to its closing price on November 10.

The deal, which is expected to close by year-end, was unanimously approved by the boards of both companies.

Roundy’s brings to Kroger an expanded footprint with a complementary base of stores and 101 pharmacies in new geographies including Milwaukee and Madison, Wis., and northern Wisconsin, under the Pick ’n Save, Copps and Metro Market banners.

The merger also expands Kroger’s presence with an innovative format in the Chicago area, where Roundy’s operates 34 stores under the Mariano’s banner.

Roundy’s has two distribution centers Wisconsin, in Oconomowoc and Mazomanie, as well as a commissary in Kenosha, Wis. Roundy’s had revenues of nearly $4 billion in fiscal 2014.

The chain has not been profitable in recent years, and same-store sales have been declining. Kroger said it has no plans to close Roundy’s stores. The chain has the leading market share in Milwaukee, though competitors have been eating into that ­advantage.

Kroger said it expects to benefit from an increase in scale and anticipates generating $40 million in synergies from the acquisition.

“Mergers for Kroger always involve both parties bringing something to the table,” said Rodney McMullen, the company’s chairman and chief executive officer. “We admire what [Roundy’s chairman, president and CEO] Bob Mariano has done with the Mariano’s banner in Chicago, where he has created an urban format that is resonating with customers, and we expect to apply Roundy’s experience to our stores in urban areas around the country. Kroger’s scale and strong financial position will enable Roundy’s to reinvest in its home state of Wisconsin while continuing to grow in Chicago. Together, we are committed to investing in Roundy’s people, communities, stores and merchandising to deliver a fantastic customer experience that will create opportunities for associates, grow customer loyalty and revenue, and create value for shareholders.”

Mariano said, “Kroger’s scale, knowledge and experience allows us to accelerate the strategic initiatives we have invested in and makes us a more formidable competitor in the marketplace. This is a great win for our customers, communities, employees and our shareholders, and I personally look forward to continuing to exceed customer and employee ­expectations.”

Under the terms of the deal, Kroger will begin a tender offer for all of the outstanding shares of Roundy’s common stock. Any shares not acquired in the offer will be acquired by Kroger in a subsequent merger. The transaction is subject to Roundy’s stockholders tendering at least a majority of the outstanding shares of common stock in the tender offer, certain regulatory approvals and other customary closing ­conditions.

The deal is not subject to any financing conditions. Willis Stein & Partners and its affiliates, holders of approximately 7% of the outstanding shares of Roundy’s common stock, have agreed to tender their shares. The agreement contains a 30-day go-shop period, which begins on the date of the agreement.

Roundy’s went public in 2012. Its shares hit their high of $12.27 in May 2012.
Kroger agreed to pay $178 million in cash. The transaction includes the assumption of $646 million of Roundy’s debt, which Kroger will refinance.

Fitch Ratings said it viewed the deal as neutral to Kroger’s current ratings. “Roundy’s will benefit from Kroger’s financial flexibility, operating efficiency and ability to drive top-line performance and grow share by investing in price and improving the customer shopping experience,” Fitch said.


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