Kroger Expands Presence in Midwest Following $800 Million Merger with Roundy’s

by Katie Sloan

Cincinnati and Milwaukee — The Kroger Co. (NYSE: KR) and Roundy’s Inc. (NYSE: RNDY) have announced a definitive merger agreement under which Kroger will purchase all outstanding shares of Roundy’s for $3.60 per share in cash.

The transaction is valued at approximately $800 million, including debt. The transaction price represents a premium of approximately 65 percent to the Roundy’s closing share price on Nov. 10.

“We are delighted to welcome Roundy’s to the Kroger family,” says 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.”

The merger increases Kroger’s presence in the Midwest with 151 stores and 101 pharmacies in new geographies for Kroger, 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 in the Chicagoland area, where Roundy’s operates 34 stores under the Mariano’s banner.

“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,” says McMullen. “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.”

Kroger plans to finance the transaction with debt and refinance Roundy’s existing debt of $646 million. Together Kroger and Roundy’s will operate 2,774 supermarkets and employ over 422,000 associates across 35 states and Washington, D.C.

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

In addition to its retail footprint, Roundy’s also operates two distribution centers in Oconomowoc and Mazomanie, Wis., and a commissary in Kenosha, Wis. Roundy’s had revenues of nearly $4 billion for fiscal year 2014.

Robert Mariano, chairman of the board, president and CEO of Roundy’s said, “We are excited about becoming part of The Kroger Co. 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.”

The boards of directors of both companies unanimously approved the terms of the agreement. Any shares of Roundy’s common stock not acquired in the tender offer will be acquired by Kroger in a subsequent merger. The transaction is not subject to any financing conditions.

Bank of America Merrill Lynch and Sagent Advisors LLC are acting as financial advisors to Kroger, and Weil, Gotshal & Manges LLP is acting as legal advisor to Kroger. J.P. Morgan Securities LLC is acting as exclusive financial advisor to Roundy’s and provided a fairness opinion to its board of directors. Kirkland & Ellis LLP is acting as legal advisor to Roundy’s.

Kroger employs nearly 400,000 associates who serve customers in 2,623 supermarkets and multi-department stores in 34 states and Washington, D.C., under two dozen local banner names, including Kroger, City Market, Dillons, Food 4 Less, Fred Meyer, Fry’s, Harris Teeter, Jay C, King Soopers, QFC, Ralphs and Smith’s. The company also operates 781 convenience stores, 327 fine jewelry stores, 1,350 supermarket fuel centers and 37 food processing plants in the U.S.

The company’s stock price closed on Wednesday, Nov. 11 at $37.04 per share, up from $29.19 per share at this time last year.

Roundy’s is a leading grocer in the Midwest with nearly $4 billion in sales and more than 22,000 employees. Founded in Milwaukee in 1872, Roundy’s operates 151 retail grocery stores and 101 pharmacies under the Copps, Pick ‘n Save, Metro Market and Mariano’s retail banners in Wisconsin and Illinois.

Roundy’s stock price closed on Wednesday at $3.57 per share, up from $3.37 per share at this time last year.

—   John Nelson

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