Kroger Further Grows Its Geographic Footprint

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Kroger Co. (NYSE: KR) has been very well established as a leading grocery store chain in America for years now. Well, Kroger is going to get a tad larger. Roundy’s Inc. (NYSE: RNDY) is now being acquired by Kroger.

What Kroger gets here is a complementary footprint of 151 more stores, and a new geographic print in Wisconsin — and also 34 Mariano’s locations in Chicago — and includes Pick ‘n Save, Copps and Metro Market banners.

The size of the acquisition is said to be some $800 million, but that is after the assumption of debt. The terms of the agreement were unanimously approved by the boards of directors of both companies.

The $3.60 per share cash buyout price is roughly a 65% premium to the $2.18 close, but that generates only a $177 million market cap, per Yahoo! Finance. After looking at the press releases for the merger and earnings, Roundy’s has a tally of $644.87 million in long-term debt and capital lease obligations — and $1.188 billion in total liabilities.

What is interesting here is that Roundy’s does have a go-shop provision in the deal. Kroger said that the transaction is not subject to any financing conditions. A company called Willis Stein & Partners and its affiliates, which hold approximately 7% of the outstanding shares of Roundy’s common stock, also have agreed to tender their shares, and the deal is expected to close before the end of the 2015 calendar year. That is roughly 50 days.

Roundy’s also operates two distribution centers in Oconomowoc and Mazomanie, Wis., and a commissary in Kenosha, Wis. Roundy’s had revenues of nearly $4.0 billion for fiscal year 2014. Here is how that compares to Kroger:

Kroger employs nearly 400,000 associates who serve customers in 2,623 supermarkets and multi-department stores in 34 states and the District of Columbia under two dozen local banner names including Kroger, City Market, Dillons, Food 4 Less, Fred Meyer, Fry’s, Harris Teeter, Jay C, King Soopers, QFC, Ralphs and Smith’s. The company also operates 781 convenience stores, 327 fine jewelry stores, 1,350 supermarket fuel centers and 37 food processing plants in the U.S.

What investors need to consider is that Kroger has a market cap of $36 billion, and its 2014 revenue was almost $108.5 billion.

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