CINCINNATI — Kroger on Tuesday announced a definitive merger agreement under which Kroger will purchase all outstanding shares of Harris Teeter for $49.38 per share in cash as part of a deal valued upward of $2.5 billion.
The transaction price represents a premium of 33.7% to the Harris Teeter closing share price on Jan. 18, 2013, the day of the first media report that Harris Teeter was evaluating strategic alternatives. The terms of the agreement were approved by the boards of both companies.
There will be a minor overlap of operations in a few markets, Kroger reported, including Raleigh, N.C., Charlottesville, Va. and Nashville. However, no store closures are expected. Kroger expects to apply Harris Teeter's operational expertise across urban upscale markets to its existing store base. Kroger also stated it would explore potentially expanding Harris Teeter's online click and collect service, whereby consumers can order their groceries online to be picked up at the store at a designated time.
"We are excited to welcome Harris Teeter to the Kroger family," stated David Dillon, Kroger's chairman and CEO. "Harris Teeter is an exceptional company with a great brand, friendly and talented associates, and attractive store formats in vibrant markets run by a first-class management team. They share our customer-centric approach to everything we do — from store format and merchandising to innovative loyalty programs," he said. "We look forward to bringing together the best of Kroger and Harris Teeter while continuing to operate and grow the Harris Teeter brands. Together, we can continue to deepen our connections with customers across all of our markets."
"We are excited about becoming part of Kroger, one of the best food retailers in the U.S. while maintaining the Harris Teeter banner, our management teams, our new store growth plan, our distribution and manufacturing facilities in North Carolina as well as our headquarters in Matthews, N.C.," added Harris Teeter chairman and CEO Thomas Dickson. "As part of Kroger, Harris Teeter will be well equipped to continue to provide our customers outstanding quality and customer service as well as excellent value in an increasingly competitive market."
Harris Teeter brings to Kroger an exceptional brand and complementary base of 212 stores in southeastern and mid-Atlantic markets and in Washington, D.C. The stores are located primarily in high-growth markets, vacation destinations and university communities in North Carolina, Virginia, South Carolina, Maryland, Tennessee, Delaware, Florida, Georgia and the District of Columbia. Harris Teeter also operates distribution centers for grocery, frozen and perishable foods in Greensboro, N.C. and Indian Trail, N.C. and a dairy facility in High Point, N.C. Harris Teeter had revenues of approximately $4.5 billion for fiscal year 2012.
Together the company will operate 2,631 supermarkets and employ over 368,300 associates across 34 states and the District of Columbia. Following closing, Harris Teeter will continue to operate its stores as a subsidiary of Kroger and will continue to be led by key members of Harris Teeter's senior management team. There are no plans to close stores, and associates will continue to have employment opportunities with both companies. Kroger headquarters will remain in Cincinnati, and Harris Teeter will keep its headquarters in Matthews, N.C.
Kroger will finance the transaction with debt. Kroger also intends to assume Harris Teeter's outstanding debt of approximately $100 million.
Kroger expects to achieve annual cost savings of approximately $40 million to $50 million over the next three to four years. Much of the savings is expected to come from the benefits of Kroger's scale, the grocer noted.
The merger is expected to close following the satisfaction of customary closing conditions including approval by Harris Teeter shareholders and regulatory approval. The transaction includes customary breakup fees.
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