Kroger, Harris Teeter To Combine In $2.5 Bln Cash Deal

(RTTNews) - Retailer Kroger Co. (KR) Tuesday announced a definitive merger agreement with Harris Teeter Supermarkets, Inc. (HTSI) for Kroger to purchase all outstanding shares of Harris Teeter for $49.38 per share in cash. The deal is valued at about $2.5 billion.

The offer price represents a premium of 33.7 percent to Harris Teeter's closing share price on January 18, the day when the first media report emerged that Harris Teeter was evaluating strategic alternatives.

The deal is expected to be accretive to earnings per share in the range of $0.06 to $0.09 in the first full year after the merger, excluding transition and transaction expenses. Kroger expects to maintain its current 8 to 11 percent long-term net earnings per share growth rate off this higher earnings base.

The terms of the agreement were approved by the Boards of Directors of both companies. The deal includes customary breakup fees.

Harris Teeter has a complementary base of 212 stores in southeastern and mid-Atlantic markets and in Washington, D.C.

The stores are located primarily in high-growth markets, vacation destinations and university communities in North Carolina, Virginia, South Carolina, Maryland, Tennessee, Delaware, Florida, Georgia and the District of Columbia.

Harris Teeter also operates distribution centers for grocery, frozen and perishable foods in Greensboro and and Indian Trail in North Carolina and a dairy facility in High Point, North Carolina. The firm had revenues of $4.5 billion for fiscal year 2012.

After closure, Harris Teeter will continue to operate its stores as a subsidiary of Kroger. It will continue to be led by key members of Harris Teeter's senior management team.

Kroger said there are no plans to close stores and associates will continue to have employment opportunities with both companies. The combined company will operate 2,631 supermarkets and employ over 368,300 associates across 34 states and the District of Columbia.

Kroger's headquarters will remain in Cincinnati, and Harris Teeter will keep its headquarters in Matthews, North Carolina.

David Dillon, Kroger's Chairman and Chief Executive Officer, said, ''This is a financially and strategically compelling transaction and a unique opportunity for our shareholders and associates. We look forward to bringing together the best of Kroger and Harris Teeter while continuing to operate and grow the Harris Teeter brands.''

Kroger will finance the transaction with debt. The firm also plans to assume Harris Teeter's outstanding debt of around $100 million. Kroger intends to continue its quarterly dividend and share repurchase program.

KR closed at $36.19 on Monday. HTSI, which settled at $48.52, is adding 1 percent in pre-market activity.