Fred Meyer Inc. plans to acquire Quality Food Centers Inc. of Seattle and Ralphs Grocery Co. of Los Angeles in deals totaling $4.8 billion, The Oregonian reported.
The acquisitions will create a $15 billion multiregional supermarket chain, the newspaper said.It would be the second major expansion for the Portland company this year. In early September, shareholders approved Fred Meyer's $1.9 billion acquisition of Smith's Food & Drug Centers Inc. of Salt Lake City.
Fred Meyer officials said Thursday that the two new deals would make the company one of the nation's largest supermarket chains with 88,000 employees and more than 800 food stores in 14 states.
The combined companies' stores would hold the No. 1 market share in Los Angeles, Seattle, Salt Lake City, Las Vegas and Albuquerque, N.M., and the No. 2 share in Portland and Phoenix, said Robert G. Miller, Fred Meyer president and chief executive.
"Timing is everything. This is an opportunity we had, and we didn't want to let it get away," Miller said.
Fred Meyer customers won't see a change in operations, he said. Any job cuts would be 1 percent or less of the total combined work force, about 880 workers.
"We are confident that we will generate at least $100 million in annual cost savings," Miller said. The combined operation "will generate significant free cash flow to fund capital expenditures and repay debt."
Under the deal, Fred Meyer would assume about $3 billion in debt, boosting its total to $5 billion.
That would mean a 70 percent debt-to-capitalization ratio, up from 61 percent, said Ken Thrasher, executive vice president and chief administrative officer of Fred Meyer.
The QFC deal is valued at $1.7 billion, and the Ralphs transaction at $3.1 billion.
Fred Meyer intends to acquire QFC in a stock exchange. Each QFC shareholder would receive the greater of 1.9 shares of Fred Meyer stock or $55 worth of Fred Meyer stock for each share of QFC stock, subject to a maximum exchange ratio of 2.3 shares of Fred Meyer stock.
On Thursday, QFC stock closed at $51.625, up 75 cents.
In a separate agreement, Fred Meyer would exchange 22.5 million shares of its stock for 100 percent of the equity of Ralphs' parent, Food 4 Less Holdings Inc., a private company controlled by Ron Burkle, who also is Fred Meyer chairman.
If the average Fred Meyer share price is less than $26.67, the number of shares issued to Food 4 Less would be adjusted upward to a maximum of 24 million shares. Fred Meyer stock closed Thursday at $30.9375.
From his first grocery job as bagboy, Burkle has become a master of orchestrating merger deals with smaller grocery chains he controls and buying larger competitors.
Burkle started out in the 1960s as a bagboy at Stater Bros., a Southern California chain, where his father worked his way from store manager to president.
Burkle dropped out of college to take a management job at Stater, joining his father in two unsuccessful attempts to buy the company.
He set up Food 4 Less Supermarkets Inc. to oversee most of his supermarket holdings. In 1995 Food 4 Less merged with Ralph's Supermarkets Inc., the biggest grocer in the region.