Harris Teeter Stock Jumps on Sale Report

MATTHEWS, N.C. — Harris Teeter Supermarkets late Wednesday confirmed reports that it had engaged J.P. Morgan to evaluate strategic alternatives, saying it had a buyout offer from two private equity firms.

Financial analysts estimated Wednesday that the retailer could realize between $2 billion and $2.5 billion in a sale.

"The company was approached by two private equity firms who expressed an interest in purchasing the company," Harris Teeter said in a statement. "In order to fulfill its duty to its shareholders to evaluate opportunities to increase shareholder value, the company retained J.P. Morgan to assist it in conducting discussions with certain highly qualified parties." Harris Teeter added it would continue to pursue its ongoing program to build new stores and operate all of its facilities as usual during the review process. 

Sources told SN Wednesday Harris Teeter could attract attention from strategic bidders including Ahold, Publix Super Markets and Kroger Co. They cited the 200-store chain’s reputation for fresh presentation and quality, strong market share and sales growth, and advantages including private label development, self-distribution and a non-union workforce.

Read more: Harris Teeter Profits Pressured

“I think when you look at deals over the last couple of years you’re seeing relatively few strong chains acquired, with most of the rest being broken chains whose valuations are a fraction of their replacement cost such as the Supervalu transaction,” said Chuck Cerankosky, an analyst following Harris Teeter for Northcoast Research, Cleveland. “In the case of Harris Teeter, you have a very strong retail food franchise, and I think it would go in a range of six to eight times EBITDA.”

Karen Short, a New York-based analyst covering Harris Teeter for BMO Capital Markets, speculated that Harris Teeter was seeking a sale to “go out on top,” despite a first-quarter financial report last week that fell short of expectations. “If you’re smart you know the competitive landscape isn’t going to get better for them. So if you’re the CEO and you know you’ve had a good run and been extremely successful in terms of what you’ve been able to do to the stock price, why not exit as a hero?”