Kroger buys Albertsons for $25 billion to compete with Walmart and Amazon

Kroger, the second largest food distribution group in the United States,was announcing this Friday the purchase of Albertsons, the fourth largest chain in the sector, for 24.6 billion dollars (about 25.2 billion euros), debt included. With the largest purchase in the sector in recent decades, a giant with a turnover of some 210,000 million dollars and nearly 5,000 establishments is created and it is capable of competing with the undisputed leader, Walmart, and with the e-commerce giant Amazon.

The company is expecting that the operation will be closely examined by the competition authorities and anticipates that it will have to agree to divest before the closing of the operation, scheduled for early 2024. Kroger, based in Cincinatti, Ohio, has the establishments of the same name, in addition to the Ralphs and Fred Meyer banners. It is already the second firm in the sector, with a market share of close to 10%, compared to 21% for Walmart.

Albertsons, for its part, has the hypermarkets with that name and is the owner of the supermarket chains Safeway, Acme, Jewel-Osco, Shaw’s, Tom Thumb, Amigos, Randall and Lucky, among others. The company is been based in Boise, the capital of Idaho, and its market share is 5.7%.

The agreement has been unanimously approved by the boards of directors of both groups. The price of 24,600 million dollars supposes the payment of 34.10 euros per share and includes the assumption of 4,700 million of net debt of Albertsons, as explained by the companies in a statement. That price represents a premium of 33% over the price prior to the first news about the operation. The main shareholder of the acquired company is the investment group Cerberus, with about 30% of the capital.

As part of the transaction, Albertsons will distribute to its shareholders a dividend of approximately $4 billion ($6.85 per share), which will be deducted from the purchase price. The price will also be adjusted based on the divestments to be made to obtain the approval of the competition authorities. Albertson plans to create a new company in which to spin off the assets that will not be incorporated into the new group. The company plans to divest between 100 and 375 establishments, as announced.

In fiscal year 2021, Albertsons had a turnover of 72,000 million dollars, with a profit of 1,620 million. For its part, Kroger added sales of 137,900 million, with a profit of about 1,655 million dollars. The joint venture adds $210 billion in turnover before divestments and will reach a market of about 85 million households, the company says.

The combined company is expecting to achieve approximately $1 billion in annual synergies net of divestitures in the first four years of combined operations. Approximately 50% will be achieved in the first two years after the closing of the operation. Companies are expecting to realize these cost savings through improved sourcing, optimization of manufacturing and distribution networks, and investment in technology.

The group plans to transfer half of these synergies, about 500 million dollars, to customers via price reductions. After the operation, the group will invest 1,300 million in reforming Albertsons the stores to improve the customer experience.

Kroger has a $17.4 billion bridge loan committed by Citi and Wells Fargo. At the closing of the transaction, the company plans to finance the purchase with a combination of available cash and new debt issuance.

The operation is the largest in recent decades in the retail sector. It tops the $13.7 billion Amazon paid to buy Whole Foods in 2017 and the $11 billion Kmart agreed to acquire Sears for in 2004.

Previous articleInsurrection, obstruction and fraud to the government: the criminal charges that the committee for the assault on the Capitol decides against Trump
Next articleChristianity, Jesus and Modernity. A complex relationship