Kroger, Albertsons reportedly in merger talks

*Editor's Note: This is a developing story. Please check back for updates.

The nation’s No. 1 and No. 2 largest supermarket retailers, The Kroger Co. and Albertsons Cos., are holding discussions about a potential merger, Bloomberg reported today.

Citing unidentified sources, Bloomberg said in its initial report that a deal could be struck possibly this week. The sources told Bloomberg that no final decisions have been made and that negotiations could linger or fall through.

Spokespeople for Kroger and Albertsons couldn’t immediately be reached for comment.

In an update, Bloomberg reported later on Thursday that a cash-and-stock deal valued at $25 billion for a Kroger acquisition of Albertsons could be in the offing as soon as this evening, according to people familiar with the situation.

Albertsons, previously owned by an investment group led by private equity firm Cerberus Capital Management, went public in June 2020 following an initial public offering. Cerberus still holds an approximately 29% stake in the grocer retailer.

The report of merger talks comes more than seven months after Albertsons announced that its board of directors had initiated a “review of potential strategic alternatives.” The Boise, Idaho-based food and drug retailer said at the time that it retained Goldman Sachs and Credit Suisse as financial advisers for the review, which would assess balance sheet optimization and capital return strategies, potential strategic or financial transactions, and development of other strategic initiatives to complement Albertsons’ existing businesses. Albertsons also said the review would involve “responding to inquiries.”

Related:Analysis: Would Kroger-Albertsons merger pass muster with regulators?

Then in April, when reporting fiscal 2021 results, Albertsons Cos. President and Chief Financial Officer Sharon McCollam shed more light on the planned strategic review, telling analysts that the company thinks it’s undervalued versus competitors.

“It was really sparked by the fact that valuation compared to peers was not reflecting the strength of our performance, and there were reasons in our mind for some of that,” McCollam said in the analyst Q&A portion of the earnings call. “We outperformed Kroger in Q4, we outperformed them for the year, etc. So that was really, originally, the catalyst for us,” she explained. “And of course, there was the overhang of the preferred shares that had hit the market, and then the IPO lock-up that was coming.”

At the time, analysts speculated that Albertsons could make a range of moves following the review.

Related:Albertsons announces strategic review of company

“This strategic review will be a comprehensive assessment of the business to tackle all of these issues. It’s still unclear what will ultimately unfold from this review, but our guess is that we’ll see multiple actions to maximize shareholder value,” CFRA Research analyst Arun Sundaram told Supermarket News in an email at the time. “For example, we could see Albertsons divest some underperforming banners and use that cash to buy back stock and accelerate investments in areas like supply chain, technology and e-commerce. But again, I’ll emphasize that there are still a lot of unknowns right now.”

Currently, Albertsons Cos. operates 2,273 retail food and drug stores in 34 states and the District of Columbia under such banners as Albertsons, Safeway, Vons, Jewel-Osco, Shaw’s, Acme, Tom Thumb, Randalls, United Supermarkets, Pavilions, Star Market, Haggen, Carrs, Kings Food Markets and Balducci’s Food Lovers Market. The retailer’s operations also include 1,720 pharmacies, 402 fuel centers, 22 distribution centers and 19 manufacturing facilities. The company totaled fiscal 2021 sales of $71.89 billion.

As of Thursday mid-morning trading, Kroger shares were down about 1% to $45.58, with a daily range of $45.03 to $48.38 and a 52-week range of $38.22 to $62.78. Shares of Albertsons were up over 6% to $27.30, with a daily range of $25.33 to $28.48 and a 52-week range of $24.34 to $37.99.

Cincinnati-based Kroger generated fiscal 2021 sales of $137.89 billion. The company operates 2,723 supermarkets and multi-department stores under more than 20 banners, including Kroger, Ralphs, Dillons, Smith’s, King Soopers, Fry’s, QFC, City Market, Owen’s, Jay C, Pay Less, Baker’s, Gerbes, Harris Teeter, Pick N’ Save, Metro Market, Mariano’s, Fred Meyer, Food 4 Less and Foods Co. More than 2,250 stores have pharmacies, and over 1,600 have fuel centers. 

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