Experts: Regulators won't derail Kroger (KR) purchase of Harris Teeter but rival bidders might

Market data shows little overlap between companies

CINCINNATI - The Kroger Co. will increase its lead on competitors in the Nashville market when the anticipated $2.5 billion acquisition of Harris Teeter Supermarkets Inc. is completed.

It will also make big market share gains in Raleigh, N.C. and two Virginia towns: Charlottesville and Virginia Beach.

But those gains won't be big enough to raise the ire of regulators, predicts Brian List, managing editor of Chain Store Guide.

WCPO Digital asked the industry publication to pull data on four cities where Kroger said it has the most overlap with the upscale Harris Teeter grocery store chain. Those areas of overlap are typically the first place regulators look when they evaluate whether the acquisition violates antitrust rules.

Kroger said it doesn't anticipate regulatory problems, but in an SEC filing, the company disclosed it could be liable for termination fees of up to $200 million if the deal fails to win regulatory approval.

"In my opinion, there will be no regulator opposition to this deal," said List. "In the Raleigh, Charlottesville and Virginia Beach markets, Kroger will strengthen its position against two main competitors: Walmart and Food Lion. Kroger will remain the #1 operator in the Nashville market."

Data from Chain Store Guide's 2013 Grocery Industry Market Share Report shows the following:

  • Kroger will add five stores to the 45 it already operates in Nashville, growing market share to 31.5 percent.
  • Harris Teeter will add 26 stores to the eight operated by Kroger in Raleigh, boosting total market share to 24.1 percent.
  • In Charlottesville, Kroger and Harris Teeter have three stores each. They'll have a combined market share of 26.9 percent post merger.
  • In Virginia Beach, Kroger will get 13 new stores from Harris Teeter, bringing its total to 20. Post merger market share will jump to 12.7 percent.

List said those market share gains might cause Kroger's rivals, Ahold and Publix, to look for their own acquisitions in the future.

At least one analyst predicts Ahold and Publix will consider rival bids for Harris Teeter.

"(Harris Teeter) is a grocer with strong brand equity, has a loyal high income shopper base, highly invested stores, no union, no debt, no pension issues. Publix and Ahold will likely need to consider a bid for strategic purposes because Kroger is known to compete on price," wrote Jason DeRise, who follows the grocery industry for UBS Investment Research.

If rival bidders emerge, DeRise predicted Kroger "could pay up to $53," or eight percent more than the $49.38 per share purchase price announced Tuesday.

Kroger and Publix declined to comment on the prospect of a rival bid.

Ahold did not respond to inquiries.



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