Kroger to buy Roundy's for $800 million

Kroger on Wednesday announced that it would buy Roundy’s Supermarkets for around $800 million in a deal that will bring the largest U.S. conventional supermarket chain to Wisconsin and Chicago, where it will take over the innovative Mariano's banner.

The all-cash deal, approved by the boards of both companies, will be financed with debt. The deal calls for Kroger to acquire all of Roundy’s shares for $3.60 per share, representing a premium of 65% to Roundy’s closing price Tuesday. The transaction, which requires Roundy’s shareholders to tender a majority of their shares, is expected to close before the end of calendar year. Willis Stein & Partners, the private equity firm holding approximately 7% of Roundy’s shares, has agreed to tender its shares, the companies said.

The deal brings Kroger 151 new 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, Wisc., and a commissary in Kenosha, Wisc. Roundy’s had revenues of nearly $4 billion in fiscal 2014.

“Mergers for Kroger always involve both parties bringing something to the table,” Rodney McMullen, Kroger’s CEO, said. “We admire what [Roundy’s chairman, president and CEO] 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.”

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“We are excited about becoming part of The Kroger Co.,” Mariano said in a statement. “ 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. ”

Following closing, Roundy’s will continue to operate its stores as a subsidiary of Kroger 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.

Kroger expects the merger to be slightly accretive to earnings in the first full year after closing, excluding merger-related expenses. It said it would look to refinance the $646 million in debt currently on Roundy’s balance sheet.