After announcing last night it’s plans to acquire California-based Unified Grocers for $375 million in an accretive deal, shares of Minneapolis-based Supervalu (SVU 4.12, +0.33) trade about +8.7% higher.
The merger agreement for SVU to acquire Unified Grocers is valued at about $375 million, comprised of about $114 million in cash for 100% of the outstanding stock of Unified Grocers plus the assumption and pay-off of Unified Grocers’ net debt at closing (about $261 million as of April 1, 2017). SVU has stated it will use cash on hand and borrowings under its credit facilities to purchase Unified’s equity and repay its outstanding debt.
SVU expects that by the end of the third year of operations after the completion of the transaction, the combined business will achieve a run rate of at least $60 million in cost synergies. These synergies will be primarily derived from utilizing the scale and expertise of the combined company as well as consolidation of select back office functions.
To achieve these synergies, SVU expects to incur transition and integration costs of up to $60 million within the first two years following the completion of the transaction. The transaction is expected to be accretive to earnings per share, excluding the transition and integration costs as well as potential purchase accounting adjustments, in the first full fiscal year following closing which begins on February 25, 2018.
The two parties expect the deal to close in mid-to-late summer 2017, at which time Unified Grocers will be a whole-owned subsidiary of SVU.
Grocery peers WFM -2.52%, KR -1.62%, SFM -0.45% trade lower today in reaction, mirroring the pressure in the broader market. Next up for SVU, the company will report Q4 results on April 25, before the open.