GRAND RAPIDS, Mich. — Spartan Stores here jumped on the merger bandwagon last week with the surprise announcement that it would acquire its much larger wholesale rival, Nash Finch Co., for about $1.3 billion.
The proposed transaction follows on the heels of Kroger Co.’s bid for Harris Teeter Supermarkets and the Cerberus-led acquisition of Albertsons from Supervalu, plus two mega-deals in Canada that will combine Safeway Canada with Sobeys and Loblaw with Shoppers Drug Mart.
“Pricing pressures, volume challenges and continued competition are weighing on industry fundamentals,” said Scott Mushkin, an analyst with Wolfe Research, New York, in a report last week. “This appears to be driving increased consolidation to improve economies of scale while reducing operating costs, helping to drive shareholder value.”
Mushkin and other analysts said they saw Spartan’s bid for Nash Finch Co. as a solid move that would give the regional wholesaler broader reach and a strong foothold in a new business, supplying commissaries.
“This is a nice strategic merger, because Nash Finch brings a new business to Spartan — the military platform — and it brings broader geography, which can diversify the single-state risk Spartan has had,” said Chuck Cerankosky, an analyst with Northcoast Research, Cleveland. “And, Spartan has the expertise in retailing that has allowed it to go to its wholesale customers from time to time and make them a part of the retail organization.”
He also said the companies have opportunities to reduce some costs and optimize their logistics. Together they operate 22 distribution centers serving retailers in 37 states, and will have 177 corporate stores.
Spartan projected $50 million in annual cost synergies for the next three years.
In addition, executives said they expect the all-stock purchase — in which Nash Finch shareholders will receive 1.2 Spartan shares for each Nash share they own — will leave them the flexibility to take advantage of other opportunities.
More news: Nash Finch Posts Q2 Sales Gains
“We will have a capital structure that supports continued growth initiatives, including potential acquisitions,” said Dennis Eidson, president and chief executive officer of Spartan, who will remain in that capacity at the combined companies.
Spartan will enter into a new $1 billion credit facility that will be used to repay outstanding borrowing for both companies. Eidson said the company expects to have “approximately $190 million in availability beyond the capital needs of the business that can be used for strategic growth opportunities.”
Both companies have been active in rolling up their wholesale customers.
“This is a company that is going to have enormous financial capacity to do what it deems is necessary and in the best interest of shareholders to continue the story and continue to grow,” said Alec Covington, president and CEO, Nash Finch, who will remain as an advisor.
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