The Kroger Co.
KR and Roundy's, Inc. RNDY today announced a definitive
merger agreement under which Kroger will purchase all outstanding shares of
Roundy's for $3.60 per share in cash.
The transaction price represents a premium of approximately 65% to the
Roundy's closing share price on November 10, 2015. The terms of the
agreement were unanimously approved by the Boards of Directors of both
companies.
Under the terms of the merger agreement, Kroger will commence a tender offer
for all of the outstanding shares of Roundy's common stock. Any shares of
Roundy's common stock not acquired in the tender offer will be acquired by
Kroger in a subsequent merger. The transaction is subject to Roundy's
stockholders tendering at least a majority of the outstanding shares of
Roundy's common stock in the tender offer, certain regulatory approvals, and
other customary closing conditions. The transaction is not subject to any
financing conditions. Willis Stein & Partners and its affiliates, holders
of approximately 7% of the outstanding shares of Roundy's common stock, have
agreed to tender their shares. The transaction is expected to close before
the end of the 2015 calendar year. The Merger Agreement contains a thirty
(30) day go-shop period, which commences on the date of the Merger Agreement
(the "Go-Shop Period").
"We are delighted to welcome Roundy's to the Kroger family," said Rodney
McMullen, Kroger's chairman and chief executive officer. "With a team of
22,000 talented associates, outstanding store locations, and a shared
commitment to putting customers first, we are excited about Roundy's future
growth."
"Mergers for Kroger always involve both parties bringing something to the
table," Mr. McMullen said. "We admire what Bob Mariano has done with the
Mariano's banner in Chicago, where he has created an urban format that is
resonating with customers and we expect to apply Roundy's experience to our
stores in urban areas around the country. Kroger's scale and strong
financial position will enable Roundy's to reinvest in its home state of
Wisconsin while continuing to grow in Chicago. Together, we are committed to
investing in Roundy's people, communities, stores and merchandising to
deliver a fantastic customer experience that will create opportunities for
associates, grow customer loyalty and revenue, and create value for
shareholders."
Robert A. Mariano, chairman of the board, president and chief executive
officer of Roundy's, Inc. said, "We are excited about becoming part of The
Kroger Co. Kroger's scale, knowledge and experience allows us to accelerate
the strategic initiatives we have invested in and makes us a more formidable
competitor in the marketplace. This is a great win for our customers,
communities, employees and our shareholders, and I personally look forward
to continue to exceed customer and employee expectations. "
Roundy's brings to Kroger an expanded footprint with a complementary base of
151 stores and 101 pharmacies in new geographies including Milwaukee,
Madison and Northern Wisconsin, which are served under the Pick 'n Save,
Copps and Metro Market banners. The merger also expands Kroger's presence
with an innovative store format in the Chicagoland area, where Roundy's
operates 34 stores under the Mariano's banner. Roundy's also operates two
distribution centers in Oconomowoc and Mazomanie, WI, and a commissary in
Kenosha, WI. Roundy's had revenues of nearly $4.0 billion for fiscal year
2014.
Financial Highlights
Kroger plans to finance the transaction with debt, and refinance Roundy's
existing debt of $646 million based on market conditions. Consistent with
the company's long-term commitment to returning cash to shareholders, Kroger
intends to continue its quarterly dividend and share repurchase program
while managing free cash flow to reduce the leverage taken on from this
merger. Although the company's net debt to EBITDA ratio will increase at the
time the merger closes, Kroger expects the ratio to remain in the 2.00 --
2.20 range upon closing of the merger. Kroger is committed to maintaining
its current investment grade credit rating.
Kroger expects the merger to be slightly accretive to earnings in the first
full year after closing, excluding merger-related expenses. The transaction
will have no effect on Kroger's current long-term net earnings per diluted
share growth rate of 8 -- 11%, plus a growing dividend.
While Kroger expects to realize cost savings of approximately $40 million
over time, the company plans to reinvest those cost savings to grow the
business. Kroger has a strong history of achieving synergy goals. Being
patient in achieving those goals reduces the risk of the transaction and
sets the stage for sustainable growth.
Operational Profile
Together Kroger and Roundy's will operate 2,774 supermarkets and employ over
422,000 associates across 35 states and the District of Columbia. Following
closing, Roundy's will continue to operate its stores as a subsidiary of The
Kroger Co. and will continue to be led by key members of Roundy's senior
management team. There are no plans to close stores, and associates will
have employment opportunities with both companies. Roundy's headquarters
will remain in Milwaukee, WI.
Kroger and Roundy's both strive to play a vital role in all of the
communities they serve. In 2014, Kroger invested more than $280 million in
local communities to provide hunger relief and support for the military and
their families, breast cancer awareness programs and more than 30,000
schools and grassroots organizations. Roundy's is similarly committed to
helping communities through the Roundy's Foundation. Chartered in 2003, the
Roundy's Foundation mission is to support organizations working to relieve
hunger and helping families in crisis due to domestic abuse, neglect and
other at-risk situations.
Additional Information
The transaction is expected to close by the end of the 2015 calendar year
following the satisfaction of customary closing conditions, including
successful completion of the tender offer and regulatory approval. The
transaction includes customary breakup fees.
BofA Merrill Lynch and Sagent Advisors, LLC are acting as financial advisors
to Kroger and Weil, Gotshal & Manges LLP is acting as legal advisor to
Kroger. J.P. Morgan Securities LLC is acting as exclusive financial advisor
to Roundy's and provided a fairness opinion to its Board of Directors.
Kirkland & Ellis LLP is acting as legal advisor to Roundy's.
Conference Call Today
Kroger chief financial officer Mike Schlotman will host a conference call
for analysts and investors today, November 11, 2015, at 11:00 a.m. (ET) to
discuss this announcement in further detail. To join this conference call,
visit ir.kroger.com. An on-demand replay of the webcast will be available
from approximately 1:00 p.m. (ET) today through Wednesday, November 25,
2015.
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