Grocery store chain Kroger said Tuesday it is buying Harris Teeter Supermarkets in a $2.5 billion deal, which will increase by three the number of states it operates in to 34.
Kroger will pay $49.38 each for Harris Teeter shares, 2% above their Monday close and 33.7% higher than the Jan. 18. closing price, when the company disclosed it was evaluating strategic alternative. After the deal closes, Harris Teeter will continue to operate its stores as a subsidiary of Kroger.
Shares of Kroger jumped 2.7% to $37.16 in morning trading. Harris Teeter shares were up 1.6% to $49.27.
Matthews, N.C.-based Harris Teeter has 212 stores in what Kroger called attractive, high-growth markets in the Southeast and Mid-Atlantic and about $4.5 billion in revenue for fiscal 2012.
"This is a financially and strategically compelling transaction and a unique opportunity for our shareholders and associates," Kroger Chairman and CEO David Dillon said in a statement.
Kroger says it expects the deal to result in cost savings of $40 million to $50 million over the next three to four years. It will finance the deal with debt and plans to assume Harris Teeter's outstanding debt of about $100 million.
The terms of the agreement were approved by both boards of directors.
Harris Teeter CEO Thomas Dickson called Kroger "one of the best food retailers in the U.S." and said the company's plans for growth will continue after the merger.
Together, the companies will operate 2,631 supermarkets and employ over 368,300 associates across 34 states and in Washington, D.C. Harris Teeter operates 212 stores in eight southeastern and mid-Atlantic states and Washington DC, along with a pair of distribution centers and a dairy facility in North Carolina.
Kroger operates 2,419 stores in 31 states. In addition to its flagship brand of supermarkets, it also owns Ralphs, Fry's and Food 4 Less.
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