Milwaukee-based Roundy’s Inc. will be acquired by Cincinnati-based The Kroger Co. for about $178 million, the companies announced Wednesday. The deal will also include $646 million in existing Roundy’s debt.
The purchase price, which is about $3.60 per outstanding share in Roundy’s, is at a 65 percent premium based on Tuesday’s closing share price. The boards of both companies have approved the agreement, and it is expected to close before the end of the year, pending regulatory approvals and merger terms.
Kroger will commence a tender offer for Roundy’s stock. Willis Stein & Partners and affiliates, which own about 7 percent of the outstanding shares of Roundy’s, will tender their shares. The deal is subject to Roundy’s stockholders tendering at least a majority of the outstanding shares.
Roundy’s has 151 stores and 101 pharmacies under the Pick ‘n Save, Copps and Metro Market brands in Wisconsin, and under the Mariano’s brand in the Chicago area. It has distribution centers in Oconomowoc and Mazomanie and a commissary in Kenosha.
The Milwaukee-based grocer today reported “disappointing” third quarter results, which included a net loss of $8.8 million, or 18 cents per share, compared with a net loss of $283.8 million, or $5.19 per share , in the third quarter of 2014. Third quarter revenue was $971.8 million, down from $973.8 million a year ago. The company’s 2014 revenue was about $4 billion.
The company’s losses are nothing new, said grocery industry analyst David Livingston.
“Roundy’s was swirling towards bankruptcy,” he said. “They were bleeding cash quarter after quarter. They were never going to turn the company around. ”
Several southeastern Wisconsin Pick ‘n Save stores have been closed in recent months as market competition increases in the region. Grand Rapids, Mich.-based big-box grocery and general merchandise chain Meijer has opened several stores in the Milwaukee market this summer and Issaquah, Wash.-based bulk chain Costco is adding more stores.
With the acquisition, the companies will operate 2,774 supermarkets and employ 422,000 people in 35 states and the District of Columbia. Roundy’s will continue to be headquartered in Milwaukee. It will operate its stores as a subsidiary of The Kroger Co., and its key leaders will remain in place.
There are no plans to close any Roundy’s stores. Its employees “will have employment opportunities with both companies.”
“We’re now part of a 400,000+ employee company, so obviously a lot of opportunities will come up that weren’t available here,” said James Hyland, a spokesman for Roundy’s. “But there’s no change in any employment status.”
But Livingston predicts that Kroger will close 25 to 30 Pick ‘n Save stores in the short term and another 25 Pick ‘n Save stores “down the road.” Roundy’s has a lot of “low volume, money losing, redundant” Pick ‘n Save stores in the Milwaukee area, Livingston said.
Kroger is one of the largest grocers in the nation and will operate with economies of scale that will allow the Pick ‘n Save stores that remain open to be more price competitive, Livingston said. Prices at Pick ‘n Save stores will drop 4 to 5 percent, he predicts.
“I think they’ll get a little more (price) competitive,” Livingston said. “(Pick ‘n Save will be priced) somewhere between Pick ‘n Save now and Walmart.”
Despite the comments from the companies today, staff at Roundy’s corporate headquarters office in downtown Milwaukee will likely be reduced, although a regional division office will likely remain here, Livingston said.
Today, executives for Roundy’s and Kroger expressed enthusiasm about the deal.
“We are excited about becoming part of The Kroger Co.,” said Robert Mariano, chairman, president and chief executive officer of Roundy’s. “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. ”
“We are delighted to welcome Roundy’s to the Kroger family,” said Rodney McMullen, Kroger’s chairman and CEO. “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. 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.”