Supermarket chain the Kroger Co. (NYSE: KR) is acquiring grocery store retailer Roundy’s Inc. (NYSE: RNDY) for about $800 million in enterprise value.
Kroger will pay $3.60 per share in cash for Roundy’s stock and will also assume the target’s $646 million debt. Roundy’s shares closed at $2.18 on Nov. 10. Kroger is financing the deal with debt.
Roundy’s, founded in 1872 and based in Milwaukee, Wisconsin, operates 151 grocery stores and 101 pharmacies mainly in Illinois and Wisconsin. It owns the Copps, Mariano’s, Metro Market and Pick’n Save brands. The target has about $4 billion in annual revenue. Kroger owns more than 2,600 supermarkets under the Dillions, Fred Meyer, Fry’s, Harris Teeter, Kroger and Ralphs brands. The combined company would own around 2,700 supermarkets across 35 states. Roundy’s will continue to be led by its current management as a Kroger subsidiary.
“Mergers for Kroger always involve both parties bringing something to the table,” says Kroger CEO Rodney McMullen. “Korger’s scale and strong financial position will enable Roundy’s to reinvest in its home state of Wisconsin while continuing to grow in Chicago.”
In 2014, Cincinnati, Ohio-based Kroger paid $280 million for vitamins supplier Vitacost.com. Kroger is expanding even as other grocery stores, such as A&P owner Great Atlantic & Pacific Tea Company went bankrupt earlier in 2015. Albertsons' recently delayed its IPO, opting instead to upgrade stores.
Grocers have been looking to expand geographically by adding regional chains. For example, Haggen Inc. has bought 146 stores on the West Coast as the result of the Albertsons and Safeway merger. For more on grocery chains, see Grocers Grow.
Bank of America Merrill Lynch, Sagent Avisors LLC and Weil Gotshal & Manges LLP are advising Kroger. J.P. Morgan Securities LLC (NYSE: JMP) and Kirkland & Ellis LLP are Roundy’s advisers.