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MarketWatch First Take: Kroger unveils $24.6 bln deal to buy smaller grocery chain Albertsons

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Kroger has inked a deal with Albertsons to purchase the smaller grocery retailer for $24.6 billion.

The acquisition will establish a national footprint “to serve America with fresh, affordable food,” according to a statement released by the companies on Friday.

Kroger Co.
KR,
+1.15%

shares fell 3.18% before market open, while Albertsons Cos. Inc.’s
ACI,
+11.53%

stock was down 2.2%.

See Now: Kroger to buy Albertsons in $24.6 bln deal

Bloomberg News reported earlier this week that Kroger was in merger talks with the smaller grocer.

Under the terms of the merger, Kroger will acquire all of the outstanding shares of Albertsons’ common and preferred stock for an estimated $34.10 per share. The deal’s $24.6 billion value includes approximately $4.7 billion of Albertsons’ net debt. The purchase price represents a premium of approximately 32.8% to Albertson’s closing price on Oct. 12.

Subject to the outcome of a store divestiture process, the cash component of the $34.10 per share price may be reduced by the per share value of a newly created stand-alone public company that Albertsons will spin off at the deal’s closing, the companies said. As part of the deal, Albertsons will pay a special cash dividend of up to $4 billion to its shareholders. 

See Now: Albertsons stock heads higher amid report of Kroger merger interest

The transaction is expected to close in early 2024.

“Consistent with prior transactions, Kroger plans to invest in lowering prices for customers and expects to reinvest approximately half a billion dollars of cost savings from synergies to reduce prices for customers,” the companies said, in the statement. “An incremental $1.3 billion will also be invested into Albertsons Cos. stores to enhance the customer experience.”

In a note released earlier this week BMO Capital Markets analyst Kelly Bania wrote that a deal between Kroger and Albertsons could run into anti-trust challenges.

“We estimate 57% of Albertsons stores are located within five miles of a Kroger location, which is quite significant in our view,” she wrote. “We believe a potential transaction between the second & fourth largest U.S. food retailers with meaningful crossover, at a time that food-at-home inflation is near 40-year highs, could face significant and lengthy anti-trust hurdles.”

Kroger shares have gained 2.9% this year, while Albertsons stock is down 3.9%, compared with the S&P 500 index’s
SPX,
+2.60%

decline of 23%.

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