Kroger Moves Into Sights of Private Equity
Kroger Moves Into Sights of Private Equity
Kroger Moves Into Sights
Of Private-Equity Shops
Private-equity firms have in recent days been training their guns on a big target: Cincinnati-based grocery giant Kroger Co.
People familiar with the matter say a number of firms across the Street have been eyeing Kroger, which carries a market capitalization of more than $20 billion, on the expectation that the company will soon begin exploring a leveraged buyout with the help of investment bank Goldman Sachs Group Inc. It remains unclear whether such expectations will pan out.
The market for leveraged takeovers has been whipped into a frenzy in the past few years, as many public companies have been subject to buyout rumors. But the specificity of discussions around Wall Street suggests there is a lot of behind-the-scenes movement around the grocer, which runs nearly 2,500 stores across 31 states under such brands as Kroger, Ralph's and Fred Meyer.
Such a deal would represent a kind of bookend for today's leveraged-buyout craze and the LBO period of some 20 years ago. Back in 1988, buyout shop Kohlberg Kravis Roberts & Co. placed a $4.6 billion bid for the grocer, but was rebuffed after the company decided to take on debt of its own through a leveraged recapitalization. KKR had previously bought supermarket chain Safeway Stores Inc., in 1986.
The conditions of the current buyout market aren't that dissimilar to the 1980s. Big buyout shops such as KKR, Blackstone Group and TPG, formerly Texas Pacific Group, have amassed huge war chests and have to put that money to work. A company like Kroger would allow them to spend a big chunk of money in one place.
These buyout shops have also been attracted to retail businesses, where the underlying value of the firms' real estate may help undergird the prices they are willing to pay.
It is still a tough time to be in the supermarket business. Traditional grocers like Kroger are getting squeezed on the high end by Whole Foods Markets Inc., which in February agreed to acquire rival Wild Oats Markets Inc., and on the low end by discount retailers such as Wal-Mart Stores Inc., which in 2001 displaced Kroger as the nation's largest food seller.
In the past 12 months through February, Kroger notched $66 billion in revenue and net income of $1.1 billion, according to figures compiled by data service Capital IQ. The firm also has about $7 billion in outstanding debt, a figure that a company official recently acknowledged was "at a very reasonable level." Kroger shares have moved up more than 40% in the past year and in
Such strong price movements tend to discourage LBO buyers, as they make the returns of such deals less attractive. Any move would certainly up the ante in the grocery-store wars.
Supervalu Inc., parent company of Save-A-Lot stores, last June bought most of Albertson's Inc.'s grocery stores in a $9.7 billion deal, making Supervalu the nation's No. 2 grocery chain by revenue, behind Kroger Co.
In that deal, Eden Prairie, Minn.-based Supervalu got more than 1,100 stores that operate under different names, including Albertson's, across the country, while
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