CINCINNATI — Kroger and Vitacost.com on Wednesday announced a definitive merger agreement under which Kroger will purchase all outstanding shares of Vitacost.com for $8 per share in cash, or approximately $280 million.
"We are delighted to welcome Vitacost.com to the Kroger family," stated Rodney McMullen, Kroger CEO. "Vitacost.com's talented team has built an exceptional online retail destination in the growing nutrition and wellness market, with an enviable technology and fulfillment infrastructure. This merger is in line with our growth strategy to enter new markets and new channels, and – along with Harris Teeter's online order and pick up service – accelerates our efforts to provide customers with even more ways to shop. Vitacost.com's core focus on healthy living products is complementary to our fast-growing natural foods business, and we intend to grow Vitacost.com's strong position in the online nutrition market," he said. "At the same time, we will build on Vitacost.com's eCommerce platform by integrating it with our existing digital offerings to create exciting new levels of personalization and convenience for our customers."
Vitacost.com brings to Kroger its strong position as one of the largest pure eCommerce companies in the nutrition and healthy living market, a team with extensive eCommerce experience, and a substantial platform that includes technology and ship-to-home fulfillment centers to serve customers in all 50 states and internationally. Vitacost.com offers more than 45,000 products including vitamins, minerals, herbs, supplements, sports nutrition, beauty care products and natural and organic foods to approximately 2.3 million active customers. There are about 10,000 SKUs that overlap with Kroger's offerings, Kroger said. The company has more than 800 associates and operates distribution centers in Lexington, N.C. and Las Vegas and a customer service center in Lexington.
According to a TABS Group estimate, Vitacost.com accounts for 7% of the $1.7 billion online vitamin, mineral and supplement market, or about $120 million per year. "Vitamins is one of the highest-developed categories of all CPG online," Kurt Jetta, CEO TABS Group, told Drug Store News. "[Vitamins] is a very promotionally-responsive category and online tends to draw those [value-driven] people disproportionately."
The company's eCommerce platform will enable Kroger to serve customers through ship-to-home orders in all 50 states, including 16 states that are currently not served by Kroger supermarkets, expanding Kroger's reach, and its private label brand Simple Truth, into new U.S. markets as well as internationally.
Building on Vitacost.com's technology and fulfillment platform and linking it to Kroger's existing digital capabilities will accelerate Kroger's omnichannel strategy. Millions of customers already plan their shopping online using Kroger's cloud-based shopping list and weekly ad through the company's mobile apps and Kroger.com, and more than one billion digital coupons have been downloaded since 2009. Kroger offers an order online, deliver-to-home service in its King Soopers division in Denver, and continues to learn from Harris Teeter's successful Express Lane model, which offers customers the ability to order online and pick up at their local store in 154 locations. With Vitacost.com, Kroger will offer customers the convenience to order online and ship to their door with an expanded assortment online.
The purchase price represents a premium of 51% to Vitacost.com's closing share price on Feb. 19, 2014, the day before a major Vitacost.com shareholder publicly asked the company to evaluate strategic alternatives. The terms of the agreement were unanimously approved by the boards of directors of both companies.
Under the terms of the merger agreement, Kroger will commence a tender offer for all of the outstanding shares of Vitacost.com common stock. Any shares of Vitacost.com common stock not acquired in the tender offer promptly will be acquired by Kroger in a subsequent merger. The tender offer and merger are subject to Vitacost.com stockholders tendering at least a majority of the outstanding shares of Vitacost.com common stock in the tender offer, certain regulatory approvals and other customary closing conditions. The transaction is not subject to any financing condition. Holders of approximately 26.2% of the outstanding shares of Vitacost.com common stock have agreed to support the transaction and tender their shares in the tender offer. The transaction is expected to close in the third calendar quarter of 2014.
Following closing, Vitacost.com will operate as a subsidiary of Kroger and continue to operate its facilities in Boca Raton, Fla., Lexington N.C. and Las Vegas.
Jefferies was the exclusive financial advisor to Vitacost.com for this transaction.