Merger mania hit Utah again Monday as Kroger Co., which only last week briefly lost its title as the nation's largest supermarket chain, struck a $13 billion deal to acquire Fred Meyer Inc.
That will mean new owners for the 11 Fred Meyer stores and 41 Smith's Food and Drug stores in Utah.The announcement was the latest in what has been a frenzy of merger activity in the supermarket industry over the past two years.
This latest merger calls for Cincinnati-based Kroger to pay about $8 billion for Fred Meyer, based in Portland, Ore., and assume some $4.8 billion in debt. Fred Meyer shareholders will receive one newly issued share of Kroger stock for each of their shares.
The deal is expected to close by February, creating the nation's largest grocery company and the first one to cover most of the country. It is subject to federal regulatory approvals, but no serious antitrust issues are anticipated since the two companies compete against each other only in two markets, Phoenix and Tucson, Ariz.
There are thousands of Fred Meyer shareholders in Utah. They acquired the shares last year when Fred Meyer acquired Salt Lake City-based Smith's in a stock swap totaling $1.95 billion that created a chain of 374 stores - 222 Fred Meyers in 17 states and 152 Smith's in six states.
Fred Meyer shareholders will end up owning about 38 percent of the new company, which will keep the Kroger name and remain in Cincinnati with its current chairman and CEO, Joseph Patellar, retaining those positions.
Neither Fred Meyer nor Smith's officials could be reached for comment by press deadlines Monday, but the swiftness of the merger announcement makes it unlikely that any information will be soon available on what the impact will be, if any, on the Utah stores.
As rumors of the pending merger circulated on Wall Street Friday, Fred Meyer's stock shot up 8 percent to $49 on the New York Stock Exchange before trading in the stock was halted a half-hour before the close. Since Oct. 8, Fred Meyer shares have increased 27 percent. Kroger's shares fell $1.18 to $48.75.
In late-morning trading Monday, investors seemed to be having second thoughts about the deal as Fred Meyer shares were down 4.87 percent at $44.18, and Kroger shares had dropped 8.55 percent to $44.81.
In addition to Smith's, Fred Meyer is the parent company of Food 4 Less, Hughes Family Markets and Ralphs.
Earlier this year, Utah-based American Stores Co. agreed to merge into Boise-based Albertson's Inc. in an $11.7 billion deal.
Kroger briefly lost its status as the nation's largest grocery chain last week when Safeway Inc. announced it would buy Chicago-based Dominica's, but the new Kroger would have 2,200 stores in 31 states, 300,000 employees and some $43 billion in annual sales, putting it safely back in front of Safeway, which also recently acquired Von's stores.
Last week, Fred Meyer said two of its Utah stores, in American Fork and Taylorsville, will be converted to Smith's stores early next year. It is not known if those plans will be affected by Monday's announcement.
Kroger currently operates 1,398 food stores, 802 convenience stores and 34 manufacturing plants that supply its stores and others.
But Kroger says it isn't taking on Fred Meyer just for bragging rights to being the biggest. It said combining the two companies would cut their costs by some $225 million within three years of the merger, with $75 million of that coming in the first year. The savings would be generated by reducing overhead, combining buying power for goods and services, and other efficiencies.
Cost cutting allows supermarket chains to remain competitive with mass merchandisers such as Wal-Mart, which sell groceries at a discount. Also, it is cheaper to acquire new stores than it is to build new ones.
Fred Meyer chairman Ronald Burke will become chairman of the executive committee of the new company's board of directors, which will be expanded to 13 Kroger seats and six Fred Meyer seats. Ronald Miller, vice chairman and CEO of Fred Meyer will become vice chairman and chief operating officer.
Kroger said it will cancel its current program of buying back its own stock.
For its third fiscal quarter ended Oct. 3, Kroger had record net earnings of $117.9 million, or 45 cents per share, on sales of $8.02 billion, up 4.4 percent over the same period last year.