Kroger Co. (KR) wins support of Harris Teeter shareholders

Merger still expected to close by year end

CINCINNATI -- Shareholders of Harris Teeter Inc. have approved a $2.5 billion acquisition offer from the Kroger Co., moving the Cincinnati-based retail giant one step closer to gaining more than 200 new stores.

The acquisition is still subject to regulatory approvals and must survive shareholder lawsuits. Kroger hopes to close the deal by the end of this year.

Harris Teeter said 82.5 percent of its shareholders voted in favor of Kroger’s offer to pay $49.38 for all shares in the Charlotte, N.C. –based grocery chain. Kroger has also agreed to assume Harris Teeter debt, bringing the deal’s total price tag to $2.5 billion.

The acquisition would give Kroger a stronger foothold in the Southeastern U.S., where Harris Teeter has 212 stores and more than $4.5 billion in revenue. One new twist to the deal is Harris Teeter’s Sept. 12 announcement that it will purchase seven Piggly Wiggly locations in South Carolina.

Retail analyst Burt Flickinger looks for Kroger to use Harris Teeter as an entry vehicle to the fast-growing Florida market, while Piggly Wiggly could be used to expand Kroger’s reach into smaller rural towns in the South.

“Like everything Kroger does it will be well analyzed,” said Flickinger, managing director of Strategic Resource Group, a retail and consumer-goods consulting firm. “Piggly Wiggly is a superb addition to the Kroger family of stores.”

Flickinger said Kroger could rebrand Piggly Wiggly under the Harris Teeter name, but it could also copy the strategy it employs in Colorado. There, King Soopers is the big city weapon of choice for Kroger, while CityMarket is used in smaller towns.

Some experts have suggested Kroger could use the Harris Teeter acquisition as a platform for expansion into the Northeastern U.S., but Flickinger sees Florida as a more likely next step.

“The competition in Florida provides real vacuum for Kroger to capitalize on,” he said, “while the population growth in that state has been one of the fastest in America.”

Another industry expert said Kroger is more likely to expand to the Northeast because Publix has “a real strangle hold” on the Florida market.

“I think the bigger question is whether this is the start of a new era of consolidation for Kroger,” said Mark Hamstra, retail/financial editor for Supermarket News. “Is this the start of a series of acquisitions where they become a truly national player?”

Hamstra’s hunch is that Kroger will not overload on new acquisitions, although buying opportunities in the grocery industry are plentiful.

For more on the shareholder vote, click here : http://bit.ly/18Ta8iP

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