The combined company would have almost 5,000 stores and annual revenue of about $200 billion.
By Brendan Case, Michelle F. Davis and Ruth DavidKroger Co. agreed to buy Albertsons Cos. in a deal with an enterprise value of $24.6 billion that would create a US grocery giant with almost 5,000 stores and annual revenue of about $200 billion.
Kroger shares fell 4% at 9:37 a.m. New York time while Albertsons dropped 5.7% after a big gain Thursday. Kroger rose 1.7% this year through Oct. 12, the day before Bloomberg News reported on the deal talks. Albertsons fell 15% during the same period, while an S&P index of consumer-staples companies slid 12%.The combination ranks among the retail industry’s biggest transactions in years, evoking such deals as Amazon.com Inc.’s purchase of Whole Foods Market in 2017 for $13.
Excluding one-time costs, Kroger said the combination would boost earnings in the first year after closing and be “double-digit accretive to earnings by year four.” The transaction will generate total shareholder returns “well above” Kroger’s standalone model of 8% to 11%, according to the statement.
Kroger is “highly confident” in winning approval from the Federal Trade Commission, McMullen said on a conference call with analysts and investors. Still, the transaction is likely to face a lengthy antitrust review with an uncertain outcome. Kroger and Albertsons both have strong footprints on the West Coast, as well as in Arizona, Nevada, Colorado, Illinois and parts of Texas.
“Perhaps the industry has reached a point of consolidation such that a potential merger of this magnitude could result in structurally higher margins,” Gutman said. “The industry may be closer to oligopoly than we think.”
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