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Kroger and Roundy's announce definitive merger agreement

Staff writer ▼ | November 12, 2015
The Kroger Co. Roundy's announced a definitive merger agreement under which Kroger will purchase all outstanding shares of Roundy's for $3.60 per share in cash.
Kroger
Merger   Together they will operate 2,774 supermarkets
The transaction price represents a premium of approximately 65% to the Roundy's closing share price on November 10, 2015. The terms of the agreement were unanimously approved by the boards of both companies.

Under the terms of the merger agreement, Kroger will commence a tender offer for all of the outstanding shares of Roundy's common stock.

Roundy's brings to Kroger an expanded footprint with a complementary base of 151 stores and 101 pharmacies in new geographies including Milwaukee, Madison and Northern Wisconsin, which are served under the Pick 'n Save, Copps and Metro Market banners.

The merger also expands Kroger's presence with an innovative store format in the Chicagoland area, where Roundy's operates 34 stores under the Mariano's banner. Roundy's also operates two distribution centers in Oconomowoc and Mazomanie, WI, and a commissary in Kenosha, WI. Roundy's had revenues of nearly $4.0 billion for fiscal year 2014.

Kroger plans to finance the transaction with debt, and refinance Roundy's existing debt of $646 million based on market conditions.

Consistent with the company's long-term commitment to returning cash to shareholders, Kroger intends to continue its quarterly dividend and share repurchase program while managing free cash flow to reduce the leverage taken on from this merger.

Although the company's net debt to EBITDA ratio will increase at the time the merger closes, Kroger expects the ratio to remain in the 2.00 – 2.20 range upon closing of the merger. Kroger is committed to maintaining its current investment grade credit rating.

Kroger expects the merger to be slightly accretive to earnings in the first full year after closing, excluding merger-related expenses. The transaction will have no effect on Kroger's current long-term net earnings per diluted share growth rate of 8 – 11%, plus a growing dividend.

While Kroger expects to realize cost savings of approximately $40 million over time, the company plans to reinvest those cost savings to grow the business. Kroger has a strong history of achieving synergy goals. Being patient in achieving those goals reduces the risk of the transaction and sets the stage for sustainable growth.

Together Kroger and Roundy's will operate 2,774 supermarkets and employ over 422,000 associates across 35 states and the District of Columbia. Following closing, Roundy's will continue to operate its stores as a subsidiary of The Kroger Co. and will continue to be led by key members of Roundy's senior management team.

There are no plans to close stores, and associates will have employment opportunities with both companies. Roundy's headquarters will remain in Milwaukee, WI.


 

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