Kroger has agreed to acquire grocery and pharmacy chain Giant Eagle for $1.65 billion, as the grocer seeks to expand its presence and boost sales.
Giant Eagle is a family-owned business with 197 supermarkets and 11 standalone pharmacies across northern Ohio, western Pennsylvania, West Virginia, Maryland and Indiana. The chain has reached approximately $9 billion in annual sales.
The purchase price comprises $1.25 billion in cash consideration and the assumption of approximately $400 million in outstanding liabilities.
CEO Greg Foran said Giant Eagle presents a clear strategic fit and will expand Kroger’s reach into “attractive adjacent markets”.
The two companies plan to make limited Giant Eagle store divestitures to obtain the necessary regulatory clearance. The transaction is expected to close next year.
A lighter version of Albertsons merger
According to GlobalData MD Neil Saunders, Kroger has been struggling to generate meaningful growth for quite some time, and the selective acquisition of Giant Eagle will give a more immediate boost to sales performance and to the story it can sell to investors.
“In some ways, this is a lighter version of the proposed mega-merger with Albertsons, as it is designed to expand Kroger’s geographical reach and provide it with a modest bump in market share that also aids economies of scale.
“However, unlike the Albertsons proposal – this deal carries considerably less risk and has a much more solid strategic basis,” Saunders said.
There are still works that need to be done, the analyst said, including post-acquisition savings, investments in price, and store refurbishments, alongside the retooling of Kroger’s own operations.
“The logic is that, as competitive dynamics in grocery are intensifying, a proper fightback requires scale. For Giant Eagle, Kroger will provide that shield,” Saunders said.
“However, for Kroger, making a success of the deal requires it to absorb a new division at the same time as fixing the core of its own business. It will also need to sweat the assets of Giant Eagle through things like loyalty programs, its media network and other incremental revenue streams,” he added.
