Kroger (NYSE: KR) is discussing a merger with rival Albertsons (NYSE: ACI) according to people familiar with the subject, in a transaction that would provide a serious market challenger to grocery store chain leader Walmart Inc. (NYSE: WMT).
While no final decisions have been taken and talks may still be delayed or stalled, the people said an agreement may be struck as early as this week.
According to Bloomberg data, the possible acquisition would be among the largest US retail mergers in years, and the largest US supermarket sale since Albertsons was bought by Supervalu, CVS Health Corp., and a group of investment companies for around US$9.8 billion in 2006.
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Albertsons shares rallied following the report, soaring 11.4% on the day and peaking at 20% after-hours.
Walmart currently leads the industry, owning a 21% market share, more than double than Kroger at 9.9%. Albertsons comes in fourth at 5.7%.
As online grocery sales grow, this potential merger would give the merged business greater purchasing power, a sprawling shopper-loyalty program, and more heft in technology investments.
However, it also faces a tumultuous economic situation, represented by Walmart’s grim outlook for the industry and surging inventory value due to inflation.
“If you decompose [the US inventory increase], about 40% of that is due to inflation. So don’t think units, think just dollars… [We’ve] got less in stock next year and you normalize for all of that, you really whittle that down to about $1.5 billion of inventory that if we can just wave a magic wand, we’d make go away today,” said CEO Doug McMillon.
The retail giant was also reportedly downsizing its workforce, following a less-than-ideal profit outlook as surging inflation weathers away at consumers’ pocketbooks.
Kroger last traded at US$44.82 NYSE.
Information for this briefing was found via Bloomberg and the sources mentioned. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.
