Kroger (NYSE:KR) will buy the 212-store Harris Teeter (NYSE:HTSI) grocery chain for $2.5 billion and keep it running under its existing banner, the companies said Tuesday (July 9).
The acquisition will expand the reach of Kroger, the largest U.S. grocer with 2,419 stores in 31 states under its flagship brand and the Ralph's, Fry's, Food 4 Less, Fred Meyer and other banners. Harris Teeter has stores in eight states stretching from the Washington, D.C. area to Florida. With the merger, Kroger will be in a total of 34 states.
The deal still requires approval by Harris Teeter stockholders. Once it closes, Harris Teeter will become a Kroger subsidiary. There are no plans to close stores or change store branding or current senior management. The division will still be based in Matthews, N.C.
Private equity firm Cerberus, which bought most of the Albertsons chain earlier this year, reportedly made a bid for Harris Teeter in June. It's not clear whether there were any other bidders for the chain, but the Kroger price is only 2 percent higher than the closing value of Harris Teeter's stock price on Monday (July 8). However, it represents a 33 percent premium over the price when Harris Teeter was first reported to be up for sale in January.
Kroger has been picky about its acquisitions—the last chain it bought was Fred Meyer in 1999, which gave it a foothold in the Pacific northwest, according to the Wall Street Journal. Kroger has also reduced prices on grocery staples at the same time as it has added high-end items such as expensive cheeses and dry-aged beef.
That high-low strategy has apparently been an effective one, because Kroger has gained ground on or overtaken Walmart (NYSE:WMT) and other competitors in some cities. In its home base of Cincinnati, Kroger has a 40.1 percent share of the grocery market, while Walmart trails with 19.1 percent.
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