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The Kroger Co. announced yesterday that it will acquire Harris Teeter Supermarkets, a 212-store chain operating in southeastern and mid-Atlantic markets, in a deal valued at about $2.5 billion. When completed - and it needs to be approved by federal regulators - Harris Teeter will operate as a subsidiary of Kroger and, according to the announcement, "will continue to be led by key members of Harris Teeter's senior management team.  There are no plans to close stores, and associates will continue to have employment opportunities with both companies.  Kroger headquarters will remain in Cincinnati, and Harris Teeter will keep its headquarters in Matthews, NC."

In making the announcement, the companies noted that Harris Teeter stores "are located primarily in high-growth markets, vacation destinations and university communities in North Carolina, Virginia, South Carolina, Maryland, Tennessee, Delaware, Florida, Georgia and the District of Columbia," and "had revenues of approximately $4.5 billion for fiscal year 2012." Once completed, Kroger will operate 2,631 supermarkets and employ over 368,300 associates across 34 states and the District of Columbia.

David Dillon, Kroger chairman/CEO, said in the announcement that "Harris Teeter is an exceptional company with a great brand, friendly and talented associates, and attractive store formats in vibrant markets run by a first-class management team.  They share our customer-centric approach to everything we do – from store format and merchandising to innovative loyalty programs.  This is a financially and strategically compelling transaction and a unique opportunity for our shareholders and associates."

And Thomas W. Dickson, chairman/CEO of Harris Teeter said: "Harris Teeter has a long track record of creating shareholder value and this merger is the culmination of those efforts over many years."
KC's View:
I may be on vacation, but I couldn't wait until next week to comment on this story.

Several points, if I may...

I thought it was noteworthy that in the New York Times story, Kroger CEO Dillon is quoted as saying that he wants to make sure that his company learns from Harris Teeter's expertise and success in areas like fresh foods and private-label goods. This strikes me as an intelligent approach to the acquisition, and also not a case of blowing smoke. A lot of CEOs say stuff like that, but don't really mean it ... but that's not the case at Kroger.

It also strikes me that Kroger's expertise in the area of weaponized data - drilling deep into transaction activity so that effective and relevant consumer-specific promotions can be offered - can only help Harris Teeter be more effective in blunting the impact of more price-driven competitors.

Finally, the Wall Street Journal notes that the Kroger-Harris Teeter deal occurs after months of speculation that Harris Teeter would be snapped up by a private equity group such as Cerberus Capital Management or Bain Capital. While some may carp that a private equity buyout might have brought it more money in the short term for investors, I think that in the long run, selling to Kroger makes a lot more sense. The combination of the two has the potential to be a lot more powerful competitively, with greater long-term potential for investors. It'll be good for Main Street and Wall Street, I think.