Kroger CFO Michael Schlotman said the company does not expect any regulatory issues with market share

Kroger CFO Michael Schlotman said the company does not expect any regulatory issues with market share

US retail giant Kroger has insisted it has no plans to close stores following its US$2.44bn deal to acquire regional supermarket chain Harris Teeter.

Kroger yesterday (9 July) revealed it will purchase Harris Teeter in a deal worth US$2.44bn. The deal came five months after Harris Teeter hired JP Morgan to help explore sale options.

The offer, worth $49.38 a share, represents a premium of 33.7% to the Harris Teeter closing share price on 18 January, the day of the first media report it was evaluating strategic alternatives.

Kroger said Harris Teeter will maintain its headquarters in North Carolina but said it expects to achieve annual cost savings of around $40m to $50m by combining the two companies.

Speaking on a conference call following the announcement of the deal, Kroger CFO Michael Schlotman said the company does not expect any regulatory issues with market share. The deal is still pending Federal Trade Commission approval.

Schlotman said Harris Teeter will continue to operate its stores as a subsidiary of the Kroger company.

"This is one of those opportunities where you put our dots on the map for our stores and for their stores and it's a great fit.

"Many associates want to know the plans for their markets. While there are operational questions still to be answered, we expect to continue to growth both franchises. We have no plans to close stores. We will examine everything in the context of the companies growth. For now I can say we would like to keep everything about Harris Teeter that made it the highly successful supermarket operator it is."

Schlotman added Harris Teeter's store footprint is "highly complimentary" to its own.

Kroger has a major presence in Nashville in Tennessee, where Harris Teeter has a few stores. Harris Teeter has a large presence in North Carolina, a state where Kroger has just eight stores. Both have a presence in Virginia.

"We look forward to bringing together the best of both. This transaction is compelling to Kroger from a strategic and financial standpoint. We expect the addition will accelerate out growth into new markets and enhance our top and bottom line."

Schlotman said it was "a little premature" to go into any detail on potential synergies the deal will bring.

"We do believe there are a lot of things our scale will bring to a combined organisation that will allow us to improve pricing power but it's too premature to say."

As for future acquisitions, the CFO said the Harris Teeter deal would not impact Kroger's ability to make other deals

"We believe over the next 18-24 months we'll get our debt to EBITDA ratio range back to where we're comfortable with over time. We have had conversations before and after this transaction with the ratings agencies. We do believe all three ratings agencies will confirm our rating. Could we do another one six months from now? That might be a little bit tougher, but as we integrate Harris Teeter and pay down some of the acquisition debt, I think that keeps our capital expenditure structure exactly where we would like it.

"As I've said over the years, the reason why we keep it as it is, is so we have a little dry powder to do something like this, to be able to integrate the company, pay down some debt and move the company forward."