Kroger Co., the largest U.S. grocery-store chain, has agreed to buy Harris Teeter Supermarkets Inc. for $2.5 billion in cash to bolster its presence in the Southeast.
The offer of $49.38 per share is 34 percent more than Harris Teeter’s closing price on Jan. 18, the day of the first media report that the chain was evaluating strategic alternatives, according to a statement Tuesday.
The buyout gives Kroger a chain that had revenue of $4.54billion last year and 212 stores in states including North Carolina, Virginia and South Carolina. Kroger, which will finance the transaction with debt, said the combination will bring annual savings of $40 million to $60 million in the next three to four years.
“It strengthens Kroger’s position in the Southeast, especially the quarter from Charlotte (N.C.) through Baltimore,” said Charles Cerankosky, a Cleveland-based analyst at Northcoast Research. “Harris Teeter has a very strong quality and service profile. They have great value, but you don’t go there to buy cheap seafood, you go there to buy great seafood.”
Kroger owns Omaha’s Baker’s Supermarkets.
Publix Super Markets Inc. and Royal Ahold NV may consider competing bids for Harris Teeter, Jason DeRise, an analyst at UBS AG in New York, said in a research note. Harris Teeter has “strong brand equity, has a loyal high-income shopper base, highly invested stores, no union, no debt, no pension issues,” he said.
While the agreement prohibits Harris Teeter from soliciting alternative bids, other companies may still come in with offers, Kroger Chief Financial Officer Mike Schlotman said during a webcast Tuesday. There are breakup fees if the deal doesn’t close, he said.
The deal would be the fourth-largest acquisition of a North American food retailer in the past 10 years, according to data compiled by Bloomberg. It’s also Kroger’s biggest takeover since 1998, when it bought Fred Meyer for more than $12 billion.
With Harris Teeter’s stores, Kroger will have 2,631 supermarkets and more than 368,300 employees, the companies said. There are no plan to close any stores, and Kroger plans to keep the Harris Teeter name.