US: Kroger strikes deal to acquire Harris Teeter
The buyout gives Kroger control of a chain that had revenue of $4.54bn last year
US retail giant Kroger has struck a deal to buy regional supermarket chain Harris Teeter in a for US$2.44bn.
The move, which comes five months after Harris Teeter hired JP Morgan to help explore sale options, will see Kroger purchase all outstanding shares for $49.38 per share in cash.
The price 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. However, the company said it expects to achieve annual cost savings of around $40m to $50m by combining the two companies.
The buyout gives Kroger control of a chain that had revenue of $4.54bn last year and 212 stores in south-eastern US states, including North Carolina, Virginia and South Carolina.
Harris Teeter CEO Thomas Dickson said: "Harris Teeter has a long track record of creating shareholder value and this merger is the culmination of those efforts over many years. We are excited about becoming part of The Kroger Co., one of the best food retailers in the US while maintaining the Harris Teeter banner, our management teams, our new store growth plan, our distribution and manufacturing facilities in North Carolina as well as our headquarters in Matthews."
Kroger will finance the transaction with debt. The company also intends to assume Harris Teeter's outstanding debt of around $100m.
Harris Teeter had remained tight-lipped over who had expressed an interest in the company, with private-equity firm Cerberus Capital Management, US retailer Publix and Dutch grocer Ahold all having been linked to the business.
Kroger And Harris Teeter Announce Definitive Merger Agreement
Adds Exceptional Brand with Complementary Footprint of 212 Stores in High-Growth Markets and Transaction is Accretive to Kroger Earnings Per Diluted Share in Year One
Harris Teeter Shareholders to Receive $49.38 Per Share in Cash; Transaction Valued at Approximately $2.5 Billion
CINCINNATI and MATTHEWS, N.C., July 9, 2013 /PRNewswire/ -- The Kroger Co. (NYSE: KR) and Harris Teeter Supermarkets, Inc. (NYSE: HTSI) today announced a definitive merger agreement under which Kroger will purchase all outstanding shares of Harris Teeter for $49.38 per share in cash.
The transaction price represents a premium of 33.7% to the Harris Teeter closing share price on January 18, 2013, the day of the first media report that Harris Teeter was evaluating strategic alternatives. The terms of the agreement were approved by the Boards of Directors of both companies.
Harris Teeter brings to Kroger an exceptional brand and complementary base of 212 stores in attractive southeastern and mid-Atlantic markets and in Washington, D.C. The stores are located primarily in high-growth markets, vacation destinations and university communities in North Carolina, Virginia, South Carolina, Maryland, Tennessee, Delaware, Florida, Georgia and the District of Columbia. Harris Teeter also operates distribution centers for grocery, frozen and perishable foods in Greensboro, NC and Indian Trail, NC and a dairy facility in High Point, NC. Harris Teeter had revenues of approximately $4.5 billion for fiscal year 2012.
"We are excited to welcome Harris Teeter to the Kroger family," said David B. 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. Together, we can continue to deepen our connections with customers across all of our markets."
Thomas W. Dickson, Chairman of the Board and Chief Executive Officer of Harris Teeter stated, "Harris Teeter has a long track record of creating shareholder value and this merger is the culmination of those efforts over many years. We are excited about becoming part of The Kroger Co., one of the best food retailers in the U.S. while maintaining the Harris Teeter banner, our management teams, our new store growth plan, our distribution and manufacturing facilities in North Carolina as well as our headquarters inMatthews, NC. As part of Kroger, Harris Teeter will be well equipped to continue to provide our customers outstanding quality and customer service as well as excellent value in an increasingly competitive market."
Financial Highlights – High Performance Combination
Kroger will finance the transaction with debt. Kroger also intends to assume Harris Teeter's outstanding debt of approximately $100 million. Consistent with Kroger's and Harris Teeter's shared long-term commitment to returning cash to shareholders, Kroger intends to continue its quarterly dividend and share repurchase program while managing free cash flow to reduce the leverage taken on from this merger. Although the ratio will increase at the time the merger closes, Kroger expects to allocate some free cash flow to debt reduction to re-establish and maintain its 2.00 – 2.20 net debt to EBITDA ratio over the next 18-24 months. Kroger is committed to maintaining its current investment grade credit rating.
Including the effect of allocating some free cash flow to debt reduction, Kroger expects net accretion to earnings per diluted share in the range of $0.06 – $0.09 in the first full year after the merger, excluding transition and transaction expenses. Kroger expects to maintain its current 8-11% long-term net earnings per share growth rate off of this higher earnings base.
Kroger expects to achieve annual cost savings of approximately $40 to $50 million over the next three to four years. Much of the savings is expected to come from the benefits of Kroger's scale. Kroger has a strong history of achieving synergy goals. Being patient in achieving those goals reduces the risk of the transaction and sets the stage for sustainable growth.
Operational Profile – Complementary Teams and Operations
Together the company will operate 2,631 supermarkets and employ over 368,300 associates across 34 states and the District of Columbia. Following closing, Harris Teeter will continue to operate its stores as a subsidiary of The Kroger Co. and will continue to be led by key members of Harris Teeter's senior management team. There are no plans to close stores, and associates will continue to have employment opportunities with both companies. Kroger headquarters will remain in Cincinnati, and Harris Teeter will keep its headquarters in Matthews, NC.
Kroger and Harris Teeter both strive to play a vital role in all of the communities they serve. In 2012, Kroger invested more than $250 million in local communities to provide hunger relief and support for the military and their families, breast cancer awareness programs and more than 30,000 schools and grassroots organizations. Harris Teeter similarly focuses community investments on feeding the hungry, supporting the military, and investing in local schools and community organizations. Harris Teeter's 2012 donations totaled $9.1 million.
The merger is expected to close following the satisfaction of customary closing conditions including approval by Harris Teeter shareholders and regulatory approval. The transaction includes customary breakup fees.
BofA Merrill Lynch is acting as exclusive financial advisor to Kroger and Arnold & Porter, LLP is acting as legal advisor to Kroger. J.P. Morgan Securities LLC is acting as exclusive financial advisor to Harris Teeter and provided a fairness opinion to its Board of Directors. McGuireWoods LLP is acting as legal advisor to Harris Teeter.
Conference Call Today
Kroger chief financial officer Mike Schlotman will host a conference call for analysts and investors today,July 9, 2013, at 9:00 a.m. (ET) to discuss this announcement in further detail. To join this conference call, visit ir.kroger.com. An on-demand replay of the webcast will be available from approximately 11:00 a.m. (ET) today through Tuesday, July 23, 2013.
Kroger, one of the world's largest retailers, employs 343,000 associates who serve customers in 2,419 supermarkets and multi-department stores in 31 states under two dozen local banner names including Kroger, City Market, Dillons, Jay C, Food 4 Less, Fred Meyer, Fry's, King Soopers, QFC, Ralphs and Smith's. The company also operates 784 convenience stores, 322 fine jewelry stores, 1,182 supermarket fuel centers and 37 food processing plants in the U.S. Recognized by Forbes as the most generous company in America, Kroger supports hunger relief, breast cancer awareness, the military and their families, and more than 30,000 schools and grassroots organizations. Kroger contributes food and funds equal to 200 million meals a year through more than 80 Feeding America food bank partners. A leader in supplier diversity, Kroger is a proud member of the Billion Dollar Roundtable and the U.S. Hispanic Chamber's Million Dollar Club.
About Harris Teeter Supermarkets
Harris Teeter Supermarkets, Inc. operates a regional chain of 212 supermarkets (147 of which have pharmacies) in eight states primarily in the southeastern and mid-Atlantic United States, and the District of Columbia. Harris Teeter is headquartered in Matthews, N.C.
Original source: Harris Teeter
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