Albertson’s to acquire American stores to create nation’s largest supermarket company
The Deal: Albertson’s Inc. has agreed to acquire American Stores, a larger but weaker competitor, for $8.4 billion in stock, or $30.55/share, plus the assumption of $3.4 billion in debt. The deal will create the nation’s largest supermarket company. Terms call for American Stores stockholders to receive 0.63 share of Albertson’s common stock per share. Albertson’s will issue 172.8 million shares and American Stores holders will own 41.3% of the combined company. The tax-free transaction will be accounted for as a poolingof-interests. On the news, American Stores jumped $5.3125, or 23%, to $28.50/share, while Albertson’s rose 50C to $48.50/ share.
Discussion: The combined companies will operate over 2,470 stores in 37 states. They will have a big concentration in the Midwest, California and Texas, and their sales will total $36 billion, ahead of Kroger Co.’s $27 billion in annual sales.
Analysts have praised the planned merger as a wise move for Albertson’s, which has long been one of the industry’s leading performers. Despite having 20% more sales in 1997 than Albertson’s, American Stores only have about half of Albertson’s net income.
The deal is the latest in the rapidly consolidating grocery industry and the latest for Alberton’s itself. Since January 1998, the company has announced 18 acquisitions, with the latest bringing the company into the stand-alone drugstore business with the addition of Osco and Sav-On Stores. Many supermarket chains are seeking to bolster their buying and marketing clout in an effort to fend off an invasion by Wal Mart stores.
Copyright Quality Services Company Aug 10, 1998
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