Kroger Expands Its Online Reach Through Vitacost Acquisition

Cincinnati-based The Kroger Co. (NYSE:KR), the nation’s biggest pure-play grocery by sales, announced today that it will purchase all outstanding shares of, Inc. (NASDAQ:VITC) for $8.00 per share in cash, or approximately $280 million.

Kroger Expands Its Online Reach Through Vitacost Acquisition

The definitive merger agreement unveiled today enjoyed approval from both companies’ BoDs.

Kroger’s enhanced presence in Internet retailing

The Kroger Co. (NYSE:KR), the nation’s second largest food retailer after Wal-Mart Stores, Inc. (NYSE:WMT), has been expanding its store-based products faster than most rivals. Moreover, its sales have grown strongly every quarter for over a decade.

Boca Raton, Fla-based, Inc. (NASDAQ:VITC) was founded in 1994 as a catalog retailer and began shifting online five years later. It sells beauty products and natural and organic foods in addition to vitamins and supplements. Its revenue grew 16% in 2013 to $382.7 million, though it reported a net loss of $13.7 million, its fourth-straight year in the red.

Vitacost’s website currently offers over 45,000 products to about 2.3 million active customers. The Kroger Co. (NYSE:KR) anticipates to add some of its own natural and organic foods, sold under the Simple Truth brand to, Inc. (NASDAQ:VITC)’s website. Kroger anticipates Simple Truth to hit $1 billion in sales this year.

Commenting on the deal, Rodney McMullen, chief executive of The Kroger Co. (NYSE:KR), said:  “This accelerates where we are by a few years, much faster than if we went and tried to build it on our own”.

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

The Harris Teeter deal gave The Kroger Co. (NYSE:KR) access to what’s called click-and-collect technology, where people order online and pick up at the store.

Major shareholder sought strategic alternatives

The Kroger Co. (NYSE:KR)’s $8 per share deal to acquire Vitacost represents a 27% premium to Vitacost’s closing price on Tuesday and 51% above the level the company traded at before a major shareholder in February publicly asked the company to mull strategic alternatives.

Responding to the shareholder’s proposal,, Inc. (NASDAQ:VITC) hired Jefferies LLC in December to help explore strategic alternatives.

The Kroger Co. (NYSE:KR) said Wednesday that it intends to finance the deal with debt, and also plans to commit to maintaining its investment-grade credit rating.

About the Author

Mani is a Senior Financial Consultant. He has worked in Senior Management role in large banking, financial and information technology organizations. He has provided solutions for major banking and securities firms across the globe in the area of retail, corporate and investment banking. He holds MBA (Finance) and Professional Management Accounting Qualifications. His hobbies are tracking global financial developments and watching sports