CINCINNATI — Kroger and Albertsons Companies, Inc. announced that they have entered into a definitive agreement under which the companies will merge two complementary organizations with iconic brands and deep roots in their local communities to establish a national footprint and unite around Kroger’s Purpose to Feed the Human Spirit. Through a family of well-known and trusted supermarket banners, this combination will expand customer reach and improve proximity to deliver fresh and affordable food to approximately 85 million households with a premier omnichannel experience.
Under the terms of the merger agreement, which has been unanimously approved by the board of directors of each company, Kroger will acquire all of the outstanding shares of Albertsons Companies, Inc. (“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. Subject to the outcome of a store divestiture process, the cash component of the $34.10 per share consideration may be reduced by the per share value of a newly created standalone public company (“SpinCo”) that Albertsons Cos. is prepared to spin off at closing in conjunction with the regulatory clearance process described further in the Transaction Details below. As part of the transaction, Albertsons Cos. will pay a special cash dividend of up to $4 billion to its shareholders. The cash component of the $34.10 per share consideration will be reduced by the per share amount of the special cash dividend, which is expected to be approximately $6.85 per share. This cash dividend will be payable to shareholders of record on November 7, 2022, as of the close of business on October 24, 2022.
The purchase price represents a premium of approximately 32.8% to the unaffected closing price of Albertsons Cos. common stock on October 12, 2022, and 29.7% to the 30-day volume-weighted average price.
Together, Albertsons Cos. and Kroger currently employs more than 710,000 associates and operate 4,996 stores, 66 distribution centers, 52 manufacturing plants, 3,972 pharmacies and 2,015 fuel centers. The combination creates a premier seamless ecosystem across 48 states and the District of Columbia, providing customers with a best-in-class shopping experience across both stores and digital channels. Kroger and Albertsons Cos. are anchored by shared values focused on ensuring that associates, customers and communities thrive. The combined company will drive profitable growth and sustainable value for all stakeholders.
Accelerates Kroger’s Go-to-Market Strategy
The transaction is expected to advance Kroger’s strategy of Leading with Fresh, Accelerating with Digital and will enable the combined company to build on Kroger’s go-to-market strategy that includes Fresh, Our Brands, Personalization and Seamless. Kroger looks forward to bringing the best of Albertsons Cos.’ own omnichannel capabilities to more customers to improve the shopping experience.
- Enables Kroger to Serve America with Fresher Food, Faster. Together, Kroger and Albertsons Cos. will have an expanded network of stores, distribution centers, and a broader supplier base. Utilizing Kroger’s End-to-End Fresh initiative across a broader network will enable the combined company to optimize its supply chain to deliver the freshest products from field to table to more customers more quickly. By bringing together Kroger’s Fresh for Everyone strategy and Albertsons Cos.’ Customers for Life strategy, the combined company will expand its portfolio of fresh products, extend shelf lives and accelerate the penetration of its Fresh portfolio.
- Creates Broader Selection of Our Brands Products to Offer Customers Higher Quality and Better Value. At a time when people are increasingly shopping for groceries and eating at home, Kroger and Albertsons Cos. will be better positioned to relieve the inflationary pressures facing shoppers with a combined portfolio of approximately 34,000 total private label products across premium, natural and organic, and opening price point brands. Kroger and Albertsons Cos. have strong track records of providing quality products at great value. The combined company’s innovation capabilities, increased manufacturing footprint and expanded national reach will drive improved quality and efficiency allowing its Our Brands portfolio to accelerate growth and profitability while remaining affordable and accessible to customers.
- Offers Customers Best-in-Class Personalized Experience. The combined company will be able to generate stronger customer insights and offer improved tailor-made experiences. With a customer base of approximately 85 million households, the combined company will have one of the most comprehensive first-party data repositories in the food and retail space and will be able to use Kroger’s leading data science capabilities to develop an even more compelling retail loyalty program. The combined company will provide an unmatched customer experience by offering more relevant recommendations and promotions to save customers time and money. More customers will benefit from Kroger’s data analytics by receiving personalized recommendations for healthier alternatives to products customers love as part of Kroger’s Food as Medicine initiative.
- Delivers an Enhanced Seamless Customer Experience Requiring Zero Compromise. The combined company will benefit from shared operational learnings across both large and small store formats, a more extensive and efficient distribution network of customer fulfillment facilities and capabilities, and an expanded pickup footprint. By bringing together Kroger and Albertsons Cos.’ technology, infrastructure, and digital and delivery service providers into a single seamless ecosystem, the combined company will be able to offer customers a more personalized and convenient omnichannel experience including in-store shopping, enhanced pickup capabilities, faster delivery times, and more capabilities to serve the customer anything, anytime, anywhere with zero compromise on quality, selection and affordability.
- Powers Continued Progress Toward Shared ESG Initiatives. Both companies have ambitious sustainability programs and a range of initiatives focused on responsible corporate stewardship, including those focused on increasing workforce diversity and fighting food insecurity. By joining forces, the combined company will be better positioned to advance a comprehensive ESG strategy focused on Kroger and Albertsons Cos.’ shared mission to support the communities they serve and pursue a more sustainable future. The addition of Albertsons Cos.’ sustainability program and resources will accelerate progress on Kroger’s Zero Hunger | Zero Waste social and environmental impact plan to create a more equitable and sustainable food system.
Strengthens Kroger’s Value Creation Model To Deliver Enhanced Returns
- Grows Core Business to Power Value Creation Flywheel. The addition of Albertsons Cos.’ portfolio expands Kroger’s core supermarket, fuel, and pharmacy businesses, bolstering the combined company’s ability to drive additional traffic into stores and digital channels. The increase in customer traffic and data will in turn power the combined company’s higher-growth, higher-margin alternative profit businesses to support continued reinvestment in the business. On a combined basis, the companies delivered approximately $210 billion in revenue, $3.3 billion in net earnings, and $11.6 billion of adjusted EBITDA in fiscal year 20211.
- Expands National Reach to Accelerate Alternative Profit Businesses Like Retail Media. The combined company will be able to reach an expanded national audience of approximately 85 million households nationwide, fueling growth in alternative profit businesses such as Retail Media, Kroger Personal Finance, and Customer Insights. With an expanded footprint and the addition of the recently launched Albertsons Cos. Media Collective, Kroger will enhance its services to media clients and provide more targeted, sophisticated solutions. The combined capabilities will accelerate the growth of Kroger’s higher-margin revenue streams by extending the portfolio of solutions and accelerating their respective growth.
- Provides Significant Synergies to Reinvest in Customer and Associate Benefits. The combined company expects to achieve approximately $1 billion of annual run-rate synergies net of divestitures within the first four years of combined operations with approximately 50% being achieved within the first two years following close. The companies expect to largely achieve synergies through improved sourcing, manufacturing and distribution networks optimization, and technology investment amplification opportunities.
- Creates Path to Deliver Enhanced Total Shareholder Returns (TSR): The combination creates a more resilient business model, with a devoted customer base and strong cash flows, that during the first four years post close is expected to deliver TSR well above Kroger’s standalone TSR model of 8 – 11%. Kroger expects the transaction to be accretive to earnings in the first year following close, and double digit accretive to earnings by year four, excluding one-time costs. Consistent with its long-term commitment to returning cash to shareholders, Kroger intends to continue paying its quarterly dividend and expects to raise its dividend over time, subject to Board approval, while managing free cash flow to reduce leverage.
Transaction Details
In connection with obtaining the requisite regulatory clearance necessary to consummate the transaction, Kroger and Albertsons Cos. expect to make store divestitures. As described in the merger agreement and subject to the outcome of the divestiture process, Albertsons Cos. is prepared to establish an Albertsons Cos. subsidiary (SpinCo). SpinCo would be spun-off to Albertsons Cos. shareholders immediately prior to merger closing and operate as a standalone public company. Kroger and Albertsons Cos. have agreed to work together to determine which stores would comprise SpinCo and the pro forma capitalization of SpinCo. The establishment of SpinCo, which is estimated to comprise between 100 and 375 stores, would create a new, agile competitor with quality stores, experienced management, operational flexibility, a strong balance sheet, and focused allocation of capital and resources to provide customers with continued value and quality service and associates with ongoing compelling career opportunities.
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