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After reports indicated that a massive grocery merger was imminent this week, Kroger announced that it is acquiring Albertsons Co. on Friday in a deal that will bring together two of the country’s largest supermarket chains.
Kroger is set to pay $34.10 per share in a deal that values Albertsons at $24.6 billion. This includes the assumption of about $4.7 billion of Albertsons' net debt. The price is a premium of 32.8% on the closing price of Albertsons stock on Oct. 12. Kroger also plans to invest an incremental $1.3 billion will also be invested into Albertsons Co. stores to enhance the customer experience, and invest $1 billion to continue raising associate wages and comprehensive benefits following the closing of the deal.
In a country where many supermarket chains are still regional, the megamerger creates a company that spans the country. It will have a presence across 48 states. In all, the company will employ 710,000 associates. It will operate 4,996 stores, 66 distribution centers, 52 manufacturing plants, 3,972 pharmacies and 2,015 fuel centers. Along with its eponymous chain, Albertsons also operates a variety of other grocers, including Safeway, Vons, Jewel Osco and Shaw’s.
In a news release, Kroger CEO Rodney McMullen said the companies have a “complementary footprint,” and that Albertsons “operates in several parts of the country with very few or no Kroger stores.”
The companies said the deal will also create advantages in the supply chain as they seek to deliver fresh food more quickly, bolster logistics as they seek to provide pickup and delivery for customers, expand private label offerings and increase personalization. The ability to drive more traffic to stores and digital channels and ability to reach about 85 million households will in turn bolster retail media offerings, the companies said.
The deal is expected to close in early 2024, subject to regulatory approval. In a deal that brings together two category leaders that do have some shared geography, that could be an area to watch. In anticipation of scrutiny, the companies have already agreed to create an Albertsons subsidiary called SpinCo to oversee between 100 and 375 stores that are divested from the primary company.
The merger comes as grocery is being reshaped. Grocery ecommerce is proving to be one of the stickiest pandemic behaviors, leading businesses to continue ramping up their digital and fulfillment operations. Walmart is mounting a big expansion, tying together its membership program, retail media and a growing delivery network. Meanwhile, Amazon continues to make a stronger push into grocery through its own stores and Whole Foods. Instacart and Costco are changing the landscape in their own ways, as well. Digital growth means companies must be present everywhere, while still being able to provide local-level delivery. Kroger and Albertsons are both growing their ecommerce capabilities, and have layered on membership and retail media. Now they've made a decision to join forces to grow.
This is a developing story. Stay with The Current for more updates and analysis.