Kroger To Acquire Harris Teeter for $2.5 Billion

The Kroger Co. (NYSE:KR) announced its agreement to acquire Harris Teeter Supermarkets Inc (NYSE:HTSI) for $2.5 billion in cash, which is considered as the second largest transaction in the grocery industry in the United States this year.

Kroger To Acquire Harris Teeter for $2.5 Billion

Kroger Discloses Share Price of Harris Teeter

In a press statement, The Kroger Co. (NYSE:KR) said the acquisition price of $49.38 per share of Harris Teeter Supermarkets Inc (NYSE:HTSI) represents a 33.7% premium to the closing price of the stock in January 18, 2013.

The stock prices of Kroger Co. (NYSE: KR) and Harris Teeter Supermarkets Inc (NYSE:HTSI) surged after the announcement of the deal. Kroger’s stock increased by 2.5% to around $37.10 per share while Harris Teeter’s stock went up by nearly 2% to $49.33 per share on Tuesday afternoon trading.

Under the terms of the agreement, The Kroger Co. (NYSE:KR) will assume the outstanding debt of Harris Teeter Supermarkets Inc (NYSE:HTSI) of approximately $100 million. The company also said it would continue its quarterly dividend and share repurchase program, citing the shared long-term commitment of the two companies in returning cash to shareholders.

Allocation of Free Cash Flow to Reduce Debts

The Kroger Co. (NYSE:KR) said it would allocate some of its free cash flow (FCF) to reduce debts and to re-establish and maintain its 2.00 – 2.20 net debt to EBITDA ratio over the next 18-24 months. The company emphasized its commitment in keeping its current credit rating.

In addition, the company estimated a net accretion to earnings per diluted share would be around $0.06 to $0.09 in the first full year after the completion of the acquisition. The estimate includes the effect of its plan to allocate FCF to debt reduction. The Kroger Co. (NYSE:KR) expects to maintain its current 8% to 11% long-term growth rate in earnings per share. Over the next three to four years, the company expects to obtain annual cost savings of approximately $40 million to $50 million.

David B. Dillon, chairman and CEO of The Kroger Co. (NYSE:KR) said,  “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. This is a financially and strategically compelling transaction and a unique opportunity for our shareholders and associates.”

Harris Teeter Supermarkets Inc (NYSE:HTSI) will become a subsidiary of The Kroger Co. (NYSE:KR) and will continue to operate its stores under the leadership its senior management team.

About the Author

Marie Cabural
Marie received her Bachelors Degree in Mass Communication from New Era University. She is a former news writer and program producer for Nation Broadcasting Corporation (NBC-DZAR 1026), a nationwide AM radio station. She was also involved in events management. Marie was also a former Young Ambassador of Goodwill during the 26th Ship for Southeast Asian Youth Program (SSEAYP). She loves to read, travel and take photographs. She considers gardening a therapy.