Kroger announces $25 billion deal to acquire rival Albertsons; Walmart still to remain nation’s largest grocer

October 24-30, 2022

By Wesley Brown

Kroger Co., the nation’s second-largest grocery chain that has closed several locations in Arkansas during the pandemic, on Oct. 14 announced the acquisition of rival Albertsons Companies Inc. that will create a nationwide colossus with operations in nearly 50 states and annual sales exceeding $210 billion.

Although the two grocery chains termed the definitive agreement as a merger, the financial metrics of the deal show that Cincinnati-based Kroger agreed to buy Albertsons for $34.10 per share, which will value the deal at $24.6 billion. As part of the deal, which has been unanimously approved by the board of directors of each company, Kroger will acquire all of the outstanding shares of Albertsons common and preferred stock and assume approximately $4.7 billion of the Boise, Idaho, grocer’s net debt.

Under the definitive agreement, the nation’s second and fourth largest supermarkets will merge the two companies under Kroger’s brand.  The combination, if approved by federal regulators, will expand customer reach and improve proximity to deliver fresh and affordable food to approximately 85 million households, officials said.

“We are bringing together two purpose-driven organizations to deliver superior value to customers, associates, communities and shareholders,” said Kroger Chairman and CEO Rodney McMullen, who will remain as chairman and CEO of the combined company. “Albertsons Cos. brings a complementary footprint and operates in several parts of the country with very few or no Kroger stores. This merger advances our commitment to build a more equitable and sustainable food system by expanding our footprint into new geographies to serve more of America with fresh and affordable food and accelerates our position as a more compelling alternative to larger and non-union competitors. 

“As a combined entity, we will be better positioned to advance Kroger’s successful go-to-market strategy by providing an incredible seamless shopping experience, expanding Our Brands portfolio, and delivering personalized value and savings,” McMullen continued. “We’ll also be able to further enhance technology and innovation, promote healthier lifestyles, extend our health care and pharmacy network and grow our alternative profit businesses. We believe this transaction will lead to faster and more profitable growth and generate greater returns for our shareholders.”

If the deal is completed, Kroger officials will have to convince the Federal Trade Commission (FTC) and the U.S. Department of Justice that the merger is needed to compete with Walmart Stores Inc., Amazon, Costco and European companies like Aldi that are expanding in the U.S. By market share, Walmart is the nation’s largest grocery store chain, while Kroger and Albertsons rank fourth and seventh, according to Zippia.

By market share, Bentonville-based Walmart is the nation’s largest grocery store operator with locations in all 50 states. The Kroger-Albertson combination would have stores in 48 states and the District of Columbia. Based in Cincinnati, most of the Kroger stores in Arkansas and across the South still operate under the company’s namesake banner. However, many of the company’s stores in western and midwestern states still operate under their original names after being acquired by Kroger’s, including Fred Meyer, Smith’s, Food4Less and Dillon’s.

Albertsons operates stores across 34 states and the D.C. area with 24 banners, including well-known brands such as Albertsons, Safeway, Vons, Jewel-Osco, Shaw’s, Acme and Tom Thumb. The Idaho-based grocery store chain also operates several brands with strong local following, including Randalls, United Supermarkets, Pavilions, Star Market, Haggen, Carrs, Kings Food Markets and Balducci’s Food Lovers Market.

“We have been on a transformational journey to evolve Albertsons Cos. into a modern and efficient omnichannel food and drug retailer focused on building deep and lasting relationships with our customers and communities. I am proud of what our 290,000 associates have accomplished, delivering top-tier performance while furthering our purpose to bring people together around the joys of food and to inspire well-being. Today’s announcement is a testament to their success,” said Vivek Sankaran, CEO of Albertsons Cos. “Given the similarities in the culture and values at Kroger and Albertsons Cos., I am confident that the combination will also have a positive impact on our associates and the communities we are proud to serve. We look forward to working together with Kroger to capture the compelling opportunities ahead.”

Subject to the outcome of the FTC’s store divestiture process, the cash value of the $34.10 per share consideration could 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. 

Like Verizon’s $28 billion acquisition of former Little Rock-based Alltel Corp., Albertsons said it is prepared to establish a spin-off to shareholders immediately before the merger closing that will operate as a standalone public company. Kroger and Albertsons Cos. have agreed to work together to determine locations where both companies have little or no competition that would have to be divested to satisfy FTC antitrust concerns.

“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,” Kroger officials said.

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 on Nov. 7, 2022, to shareholders of record as of the close of business on Oct. 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 employ more than 710,000 associates and operate a total of 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. 

Both Kroger and Albertsons Cos. are anchored by shared values focused on ensuring associates, customers and communities thrive, officials said. The combined company will drive profitable growth and sustainable value for all stakeholders.

As customers continue to grapple with inflation and face higher grocery bills, Kroger said it has a long track record of lowering prices, improving the customer experience and investing in its associates and communities. Consistent with prior transactions, the Cincinnati grocery chain said it plans to invest in lowering prices for customers and expects to reinvest approximately half a billion dollars of cost savings from synergies to reduce customer prices. 

In addition, Kroger said it will also invest $1.3 billion into Albertsons Cos. stores to enhance the customer experience. Kroger will also build on its recent investments in associate wages, training and benefits. The combined company expects to invest another $1 billion to continue raising associate wages and comprehensive benefits after closing the deal. That is an additional incremental investment of $1.2 billion in associate compensation and benefits since 2018.

“This transaction is a testament to the passion and commitment of both Albertsons Cos. and Kroger associates. Supporting and investing in our associates is foundational to both of our organizations and will continue to be a critical pillar of our success. Kroger has a track record of successful integrations that combine the strengths of each company while maintaining and enhancing each organizations’ distinctive banners and storied histories,” said McMullen. “As a combined company, we will build on our similar values to create a culture that embraces diversity, equity and inclusion and fosters a best-in-class associate experience by enabling, supporting and empowering our associates to unlock their full potential. Importantly, the merger secures union jobs and we will continue to work with local unions across America to serve our communities. We look forward to bringing the Albertsons Cos. and Kroger families together to create new and exciting career opportunities for associates.”

Despite last week’s announcement, there are still some concerns in Congress, on Wall Street and in the union halls that the deal will not favor consumers and employees. The International Brotherhood of Teamsters, which has thousands of members employed at Kroger and Albertson stores, said it will oppose any merger that threatens jobs and weakens worker conditions.

“Teamster warehouse jobs in the grocery industry are some of the best jobs in the country, and our members take great pride in what they do,” said Teamsters General President Sean M. O’Brien. “The proposed merger between Kroger and Albertsons will have serious implications for the more than 18,000 Teamsters employed at both companies and is another example of why real antitrust reform is needed. 

“Historically, mergers of this magnitude have a negative impact on workers and the public. Less competition almost always means higher prices and fewer choices,” O’Brien said. “We will be monitoring developments as the regulatory process plays out. There are a lot of unanswered questions that need to be addressed. Our concerns are shared among workers, customers, elected officials, shareholders, consumer advocates and the general public.”

As noted, following the close of the transaction, Rodney McMullen will continue to serve as Chairman and CEO and Gary Millerchip will continue to serve as CFO of the combined company. The deal is expected to close in early 2024, subject to the receipt of required regulatory clearance and other customary closing conditions, including receipt of clearance under the Hart-Scott-Rodino Antitrust Improvements Act of 1976.

Although Kroger has closed three locations in the Little Rock area and other stores across the state during the pandemic, company officials say the grocery store chain still has over 4,000 employees working at 32 retail locations in Arkansas.  

Photo Captions:

1. Kroger and Albertsons on Oct. 14 announced a deal to merge two complementary companies with iconic brands and deep roots in their local communities to establish a national footprint serving over 85 million customers.