Kroger to buy Harris Teeter for $2.5 billion, shares rise

Tue Jul 9, 2013 1:26pm EDT
 
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By Lisa Baertlein and Jessica Wohl

(Reuters) - Kroger Co (KR.N: Quote) said on Tuesday it would buy regional grocer Harris Teeter Supermarkets Inc HTSI.N in a $2.5 billion deal, the latest in a string of grocery industry consolidations.

Shares of both companies rose, outpacing gains in the broader market.

The deal, approved by the boards of both companies on Monday night, will boost Kroger's presence in the U.S. southeast. Competitors there include privately held Publix and discounter Wal-Mart Stores Inc (WMT.N: Quote), the largest U.S. food retailer.

Cincinnati-based Kroger, the largest mainstream U.S. grocer, will also get a bigger presence in the mid-Atlantic region, slightly more upscale stores that do a strong business in fresh food and access to fast-growing markets.

As the supermarket industry has consolidated, chains like Harris Teeter, based in Matthews, North Carolina, have struggled to maintain market share against rivals such as Wal-Mart, Costco Wholesale Corp (COST.O: Quote) and Whole Foods Market Inc (WFM.O: Quote).

The deal is somewhat "out of character" for Kroger, which for 10 years or so has been "cherry picking stores vacated by downsizing or exiting competitors," said analyst Walter Stackow of Manning & Napier, whose holdings include Ahold AHLN.AS, which runs U.S. grocery stores such as Stop & Shop and Giant.

Kroger's acquisition of Harris Teeter is the second biggest deal in the U.S. grocery industry this year, and the second-largest acquisition ever for Kroger after its $13.89 billion purchase of Fred Meyer Inc in 1999.

The grocery industry needs more consolidation as it faces pressure from a swath of retailers ranging from dollar stores and Wal-Mart to upscale grocers Fairway FWM.O and Whole Foods, said Wolfe Research senior retail analyst Scott Mushkin. "There are just more stores trying to do the same thing," he said.   Continued...

 
Breakfast cereal is shown for sale at a Ralphs grocery store in Del Mar, California, March 6, 2013. REUTERS/Mike Blake