Kroger agrees to buy Albertsons for $24.6 billion

Albertsons and Kroger Supermarkets

Bridget Bennet | Mayor Bloomberg | fake images; Brandon Bell | fake images

rival shopkeepers Hands Y Albertson’s on Friday he announced plans to form a team.

The companies said Kroger had agreed to buy Albertsons for $34.10 a share in a deal valued at $24.6 billion. Albertsons shares had closed at $28.63 on Thursday after rising on reports that a deal was imminent.

Kroger is the second largest grocery store by market share in the United States, behind walmartand Albertsons is fourth, after Costco. Together, Kroger and Albertsons would be a close second to Walmart.

The boards of both companies unanimously approved the deal, which will also require regulatory approval.

The link comes during a difficult time in the grocery industry. Supermarkets have been quick to keep up as shoppers embrace new ways to restock the fridge. Businesses have had to invest in automation, employee training and more as consumers walk down store aisles, order home delivery and use curbside pickup.

Grocers have also been hit hard by inflation. food prices have jumped 11.2% from a year ago, according to the most recent data from the Bureau of Labor Statistics. Companies have had to weigh when to pass on higher costs to customers and when to absorb them to remain competitive.

Kroger and Albertsons by the numbers

HANDS

  • 2,800 stores in 35 states
  • 420,000 employees
  • 25 signs, including Fred Meyer, Ralphs, King Soopers, and namesake stores
  • $33.3 billion market capitalization

ALBERTSONS

  • 2,200 stores in 34 states and Washington, DC
  • 290,000 employees
  • 22 signs, including Safeway, Acme, Tom Thumb, and namesake stores
  • $15.2 billion market capitalization

Source: Company Websites, FactSet

The grocery industry is highly fragmented. Privately owned regional grocers like HEB in Texas and Publix in Florida remain power players with strong loyalty. Newcomers such as discount stores Aldi and Lidl, and AmazonAmazon Fresh, have also attracted customers. Additionally, some Americans stock up on warehouse clubs like Costco, Walmart-owned Sam’s Club, and bj wholesale.

Kroger and Albertsons also have numerous store banners, including names the operators have acquired over the years. Kroger banners include Fred Meyer, Ralphs, and King Soopers, and Albertsons banners include Safeway, Acme, and Tom Thumb.

Together, Kroger and Albertsons employ more than 700,000 people in about 5,000 stores.

Kroger captured about 8.5% of the $1.4 trillion US household food market last year, according to Morgan Stanley. Albertsons’ share was about 5%. The next three big players after Albertsons are Ahold-Delhaize, Publix, Sam’s Club and Target. Ahold DelhaizeBanners include Food Lion and Stop & Shop, along with Fresh Direct, an online grocery store it acquired.

To team up, Kroger and Albertsons would need regulators to approve. Regulators would look at where the companies have dominance and weigh whether they would have too much power if they combined, said Eleanor Fox, a New York University professor who specializes in antitrust and competition policy. A merger is less likely to be approved if they are the top two grocers in many markets, she said.

Some of the companies’ markets have significant overlap, such as Southern California, Colorado, Seattle and parts of the Midwest and Texas, Morgan Stanley retail analyst Simeon Gutman wrote in a research note Thursday. Other regions, such as the Northeast and Southeast, have very little overlap.

“Albertsons Cos. brings a complementary footprint and operates in various parts of the country with very few or no Kroger stores,” Kroger CEO Rodney McMullen said in a news release announcing the deal.

The combination will likely undergo a lengthy review period by regulators and may require store divestments, Morgan Stanley’s Gutman said.

Gutman also warned of the financial advantages of the deal. Historically, consolidation in the grocery industry hasn’t paid off in the form of higher profits, he said. However, he said the industry could be at a tipping point where a big merger could also boost margins.

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