A Kroger Vitacost purchase worth $280 million has been agreed by the supermarket giant and the vitamins & health products online seller. According to Kroger, the acquisition will help it sell goods on the internet and compete with other companies, such as Wal-Mart and Amazon.com.
The deal, valued at $280 million ($8 per share) represents a 51% premium to Vitacost’s closing share price at the end of February 29. On the following day Vitacom.com’s shareholders, led by money manager Consac LLC (which had an 8% stake), asked the company to explore strategic alternatives, Kroger wrote. The offer value represents a 27% premium to Tuesday’s $6.28 closing price of Vitacost.com shares.
Kroger, America’s largest supermarket chain, which expects to finalize the transaction in Q3 2014, says holders of 26.2% of the outstanding shares of Vitacom.com have already given the deal their support.
Enhancing Kroger’s Internet presence
Nasdaq-listed, Boca Raton, Florida-based Vitacost.com’s portfolio includes over 45,000 items, comprising vitamins, beauty care products, natural & organic foods, sports nutrition, supplements, herbs and minerals. The company has about 2.3 million active customers.
Mike Schlotman, Kroger’s Senior Vice President and Chief Financial Office, said:
“Welcoming Vitacost.com also aligns with our goal of entering new markets. They serve customers in 16 states that are not currently served by Kroger supermarkets, expanding Kroger’s reach into new US markets as well as internationally. This is a tremendous opportunity to connect in those markets.”
Cincinnati-based Kroger’s online retail offerings are currently limited to King Scoopers in Denver and 154 Harris Teeter stores, mainly in the Southeast. Its King Scoopers model does not have nationwide capabilities.
In 2013, Kroger acquired Harris Teeter for $2.44 billion, adding its “click and collect” online option to its service. Vitacost.com’s ready-made online shopping platform can be adapted and enhanced.
Jeffrey Horowitz, CEO of Vitacost.com, said:
“We are excited to join such a tremendous organization and believe this will be an outstanding partnership. This transaction represents a significant premium for our shareholders and the company will benefit by leveraging Kroger’s scale and resources to further drive the online healthy living industry to new heights.”
The purchase will enhance Kroger’s technology expertise and give it a platform for accomplishing home delivery of online orders.
Financial highlights
Kroger says it will finance the deal with debt. It expects to achieve a 2.00-2.20 debt-to-EBITDA (earnings before interest, taxes, depreciation, and amortization) ratio by the middle or end of next year.
Kroger confirmed net earnings per diluted share growth guidance range of $3.19 to $3.27 for the 2014 financial year. It expects its current long-term net earnings per diluted share growth to continue at 8% to 11%, plus a growing dividend. Kroger reported a 4.6% rise in Q1 2014 sales.
Vitacost.com’s 2013 revenue was $382.7 million. It shipped 1.5 million orders to 2.3 customers in Q1 2014.
