By Savyata Mishra and Juveria Tabassum
Kroger said on Friday it would sell over 400 grocery stores to C&S Wholesale Grocers in an effort to get regulatory approval for its nearly $25-billion takeover of smaller rival Albertsons.
Kroger will get about $1.9 billion in cash for the store divestitures. The company said it may need C&S to purchase up to an additional 237 stores in certain geographies to get regulatory nod for the deal, which is on track for an early 2024 close.
"One of the main bearish arguments we heard on Kroger and Albertsons is that the companies likely were having trouble finding a buyer... Now this major hurdle is in the past," J.P.Morgan analyst Ken Goldman said.
Kroger's shares surged as much as 6%, even as it took a $1.4-billion charge in the second quarter related to an opioid case settlement, and warned of weaker sales for the rest of the year. Albertsons' stock was up 3%.
The proposed merger of the supermarket operators has faced tough scrutiny from consumer groups and U.S. lawmakers since its announcement last October, over concerns it would reduce competition and drive grocery prices up.
SoftBank-backed C&S operates primarily as a supplier rather than a grocery-store operator. It currently has around two dozen stores under the Grand Union and Piggly Wiggly brands.
"(C&S) brings experience with the merger process, having been an FTC-approved divestiture buyer in prior grocery transactions," CEO Rodney McMullen said on a post-earnings call.
Separately, Cincinnati, Ohio-based Kroger said it expects the spending environment to "remain challenged" due to still-high inflation.
It missed Wall Street expectations for same-store sales in the second quarter ended Aug. 12, and forecast identical sales, without fuel, to be at the low end of its annual target.
The company also swung to a loss of $180 million in the quarter, compared to a profit of $731 million from a year ago, accounting for the charges related to the opioid settlement.
However, on an adjusted basis, it reported a profit of 96 cents per share, compared to LSEG estimates of 91 cents per share.
(Reporting by Juveria Tabassum and Savyata Mishra; Editing by Pooja Desai)
