CINCINNATI and MATTHEWS,
N.C., Jan. 29, 2014
/PRNewswire/ -- The Kroger Co. (NYSE: KR) and Harris Teeter
Supermarkets, Inc. (NYSE: HTSI) today announced that the merger
transaction between the two companies was completed on January 28, 2014. Under the terms of the merger
agreement, Harris Teeter shareholders will receive $49.38 per share of Harris Teeter common
stock.
"We are pleased that our merger is complete and look forward to
bringing together the best of Kroger and
Harris Teeter to benefit our customers, associates and
shareholders," said W. Rodney
McMullen, Chief Executive Officer of Kroger. "This merger
brings the exceptional Harris Teeter brand and a complementary base
of stores in attractive markets to the Kroger family. We have long
respected Harris Teeter's customer orientation, friendly and
professional associates, strong management team, and company values
– which are consistent with ours. Together, through our Customer
1st Strategy, we are going to be an outstanding
combination."
Thomas W. Dickson, the outgoing
Chairman and CEO of Harris Teeter Supermarkets, Inc., stated, "We
are excited that Kroger, one of the best food retailers in the
U.S., has recognized the value in Harris Teeter. This
successful transaction is, first and foremost, a tribute to our
outstanding management teams and associates. Their tireless
commitment to delivering great value and excellent customer service
has been instrumental in building Harris Teeter into the unique
brand that it is today. The merger with Kroger provides the
opportunity to continue to expand the Harris Teeter brand as well
as to provide future employment and career advancement
opportunities for our associates in an increasingly competitive
market. The merger also is the culmination of a long track
record of delivering substantial value to our shareholders."
The transaction allows Kroger to expand with the prestigious
Harris Teeter brand and a base of 227 stores in the fast-growing
and attractive southeastern and mid-Atlantic markets and in
Washington, D.C. Harris
Teeter also operates distribution centers for grocery, frozen and
perishable foods in Greensboro, NC
and Indian Trail, NC and a dairy
facility in High Point, NC.
Harris Teeter will continue to operate its stores under the Harris
Teeter brand name as a subsidiary of The Kroger Co. Harris
Teeter had revenues of $4.7 billion
for fiscal year 2013.
Financial Highlights
Kroger financed the
transaction through a combination of debt issued in December 2013 and commercial paper. Although
Kroger's net debt to EBITDA ratio increased due to the merger
close, the company expects to allocate some free cash flow to debt
reduction to re-establish and maintain its 2.00 – 2.20 net debt to
EBITDA ratio over the next 18-24 months. Kroger is committed to
maintaining its current investment grade credit rating. In
addition, consistent with its long-term commitment to returning
cash to shareholders, Kroger intends to continue its quarterly
dividend and share repurchase program while managing free cash flow
to reduce the leverage taken on in this merger.
Including the effect of allocating some free cash flow to debt
reduction, Kroger continues to expect net accretion to earnings per
diluted share in the range of $0.06 –
$0.09 in the first full year after
the merger, excluding transition and transaction expenses, after
taking into account the company's current 8-11% long-term net
earnings per diluted share growth rate. Kroger expects to achieve
cost savings of approximately $40 to $50
million, largely from the benefits of Kroger's enhanced
scale, within the next four years.
As of January 28, 2014, shares of
Harris Teeter common stock ceased to trade on the New York Stock
Exchange.
Operational Profile
Together, the company will
operate 2,641 supermarkets and employ more than 368,000 associates
across 34 states and the District of Columbia. Harris Teeter
will continue to operate its stores as a subsidiary of The Kroger
Co. and will continue to be led by Harris Teeter's current
president, Fred Morganthall.
There are no plans to close stores, and associates will continue to
have employment opportunities. Kroger is headquartered in
Cincinnati, OH and Harris Teeter's
headquarters remains in Matthews,
NC.
Kroger and Harris Teeter both
strive to play a vital role in all of the communities they serve.
In 2012, Kroger invested more than $250
million in local communities to provide hunger relief and
support for the military and their families, breast cancer
awareness programs and more than 30,000 schools and grassroots
organizations. Harris Teeter similarly focuses community
investments on feeding the hungry, supporting the military, and
investing in local schools and youth sports organizations.
Harris Teeter's 2013 donations totaled nearly $8.3 million.
Thomas W. Dickson to Retire as
Chairman and CEO of Harris Teeter Supermarkets, Inc.
Kroger and Harris Teeter today
announced the retirement of Thomas W.
Dickson as Chairman and Chief Executive Officer of Harris
Teeter Supermarkets, Inc.
"Tad has done an outstanding job as the CEO for the past 16
years," said Mr. McMullen. "During his tenure as CEO, the
management team of Harris Teeter has more than doubled the sales of
the company and increased the operating profit fourfold by building
over 100 new stores, expanding into new markets and improving the
overall operating performance of the company. We look forward to
working closely with the management team to continue to expand the
Harris Teeter brand."
Kroger and Harris Teeter also
announced the resignation of John
Woodlief, Executive Vice President, who has served as Chief
Financial Officer since 1999. Prior to that time, he served
as managing partner of the PricewaterhouseCoopers Carolinas
offices. Independence rules concerning Mr. Woodlief's
previous position with PricewaterhouseCoopers, who serve as
Kroger's independent accountants, prohibit him from serving in a
financial role with Kroger. He will pursue other
interests and will be available for consultation to the
company.
About Kroger
Kroger, one of the world's largest
retailers, employs more than 368,000 associates who serve customers
in 2,641 supermarkets and multi-department stores in 34 states and
the District of Columbia under two
dozen local banner names including Kroger, City Market, Dillons,
Food 4 Less, Fred Meyer, Fry's,
Harris Teeter, Jay C, King Soopers, QFC, Ralphs and Smith's.
The company also operates 786 convenience stores, 327 fine jewelry
stores, 1,218 supermarket fuel centers and 38 food processing
plants in the U.S. Recognized by Forbes as the most generous
company in America, Kroger supports hunger relief, breast cancer
awareness, the military and their families, and more than 30,000
schools and grassroots organizations. Kroger contributes food and
funds equal to 200 million meals a year through more than 80
Feeding America food bank partners. A leader in supplier diversity,
Kroger is a proud member of the Billion Dollar Roundtable
and the U.S. Hispanic Chamber's Million Dollar Club.
About Harris Teeter Supermarkets
Harris Teeter
Supermarkets, Inc., with headquarters in Matthews, NC, is a wholly-owned subsidiary of
The Kroger Co. (NYSE: KR). The regional grocery chain employs
approximately 25,000 associates and operates stores in North Carolina, South Carolina, Virginia, Georgia, Tennessee, Maryland, Delaware, Florida and the District of Columbia.
Forward-Looking Statements
This press
release contains certain forward-looking statements about the
future performance of Kroger, including the level of Kroger's net
debt to EBITDA ratio, use of free cash flow, the net accretion to
earning per diluted share of the merger and annual cost savings to
be achieved. These statements are based on management's assumptions
and beliefs in light of the information currently available to it.
These statements are indicated by words such as "expects," "will,"
"plans," "intends," "committed to," and "is." Our ability to
achieve earnings per share growth rate expectations may be affected
by: labor disputes, particularly as Kroger seeks to manage health
care and pension costs; industry consolidation; pricing and
promotional activities of existing and new competitors, including
nontraditional competitors, the aggressiveness of competition, and
our response to these activities; unexpected changes in product
costs; the state of the economy, including interest rates and the
inflationary and deflationary trends in certain commodities; the
extent to which our customers exercise caution in their purchasing
behavior in response to economic conditions as well as fuel and
food prices; the number of shares outstanding; the success of our
future growth plans; goodwill impairment; changes in government
funded benefit programs; volatility in our fuel margins; the effect
of fuel costs on consumer spending; the effect of prescription
drugs going off patent has on our sales and earnings; our
expectations regarding our ability to obtain additional pharmacy
sales from third party payors; and our ability to generate sales at
desirable margins, as well as the success of our programs designed
to increase our identical sales without fuel. In addition, any
delays in opening new stores, failure to achieve tonnage growth as
expected, or changes in the economic climate, could cause us to
fall short of our earnings targets. Earnings also may be affected
by adverse weather conditions, particularly to the extent that
adverse weather conditions and natural disasters disrupt our
operations or those of our suppliers; create shortages in the
availability or increases in the cost of products that we sell in
our stores or materials and ingredients we use in our manufacturing
facilities; or raise the cost of supplying energy to our various
operations, including the cost of transportation; and the benefits
that we receive from the consolidation of the UFCW pension plans.
Our expectations regarding the accretion to earnings to be
generated by the merger, and the timing of that accretion, depends
primarily on the factors identified above as well as the synergies
that are generated by the merger resulting in cost savings, as well
as the accuracy of our modeling that assisted us in determining the
appropriate acquisition price. Our expected cost savings from the
transaction, as well as the timing of that cost savings, will
depend on our ability to integrate Harris Teeter into our
organization in a timely fashion, including synergies anticipated
by reduction of duplicative systems and processes. Our
objective to maintain a particular net total debt to EBITDA ratio
by allocating free cash flow to debt reduction will be affected by
unanticipated increases in net total debt, our inability to
generate free cash flow at the levels anticipated, and our failure
to generate expected earnings; and the extent to which that ratio
will support our current investment grade rating depends on how the
rating agencies view our overall financial condition. Our intention
to continue our quarterly dividend and share repurchase programs
depend primarily on the factors identified above that will generate
earnings growth and free cash flow, as well as, with respect to our
share repurchase program, the price at which our common shares
trade. Our expectation regarding the operation of the Harris Teeter
stores will depend on the successful integration of those stores
into our organization. These forward-looking statements are subject
to uncertainties and other factors that could cause actual results
to differ materially. We assume no obligation to update the
information contained herein. Please refer to Kroger's reports and
filings with the Securities and Exchange Commission for a further
discussion of these risks and uncertainties.
SOURCE The Kroger Co.