Report: Kroger might buy Fresh Market
Kroger is in the bidding to acquire Greensboro, N.C.-based The Fresh Market, according to published reports.
The Fresh Market has since October been conducting a strategic review — a move that sometimes leads to takeovers of stressed companies. Kroger is one of several retailers that are engaged in a second round of bidding, according to Reuters. Others making offers for the chain are private equity firms Apollo Global, KKR and TPG, Bloomberg reported.
Based on valuations paid for Harris Teeter in 2014 and Roundy's Inc. in 2015, Kroger appears poised to pay $1.4 billion for the struggling upscale grocery retailer, an Enquirer analysis shows.
Kroger and The Fresh Market officials separately declined to comment on the reports.
The Fresh Market — with 183 stores in 27 states and locations in Indianapolis, Fishers and Carmel — did $1.8 billion in sales during its latest 12 months of operations and employs more than 12,000 workers, according to Bloomberg.
While the company grew at a brisk double-digit pace as late as 2014, sales have slowed as competition has intensified for the retailer that took its inspiration from European-Style open-air market emphasizing fresh foods as well as healthy and organics. The company's sale results have disappointed Wall Street throughout 2015 as total sales growth slowed to 7 percent.
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Comparable store sales — a critical measure of retail health that excludes growth from new stores being built — have also slowed from 5.7 percent growth in 2012 to 2.9 percent in 2014 and -1.6 percent during the first nine months of 2015.
As growth stalled, The Fresh Market's stock has tumbled 58 percent from its $42.09 high on March 6 to a low of $17.81 on Jan. 20. The company has slowed the opening of new stores and closed four underperforming ones as its stock has lost half its value over the past year.
Last year, it exited California after being outgunned by larger rivals, Whole Foods Markets and Sprouts Farmers Market. The retailer has also been hurt by traditional supermarkets, such as Kroger, that have widened fresh and organic food offerings at lower prices.
In October, The Fresh Market disclosed that it had hired legal and financial advisers to "pursue value-enhancing initiatives as a standalone company, capital structure optimization, or a sale of the company or other business combination," but added there was "no assurance that this strategic and financial review will result in any specific action."
The company added that its new CEO Rich Noll was " working to identify and execute on opportunities to improve the Company's sales growth and to drive operational efficiencies."
The Fresh Market's beaten-down price and its relatively small debt load makes it a tempting takeover target. The company's enterprise value — the total value of all its outstanding stock and debt — was about $835 million in October — less than half the $1.8 billion price tag it would have commanded a year ago.
Meanwhile, Kroger has grown to become the world's third-largest retailer through a combination of sustained organic growth and a recent spate of acquisitions, including the $2.5 billion takeover of North Carolina's Harris Teeter in 2014 and Wisconsin's Roundy's Inc., acquired in December for $800 million. Combined, those transactions added $8 billion to Kroger's total sales that now exceed $100 billion annually.
Kroger paid roughly seven times EBITDA — a measure of cash flow — for each of those chains. That multiple suggests Kroger would be willing to pay $1.4 billion, based on the Fresh Market's $197.3 million in EBITDA during the 12 months ending Oct. 25.
On Thursday, The Fresh Market's stock soared as high as 23 percent to $22.78 in heavy buying. Trading also halted on Thursday as shares changed hands at more than 10 times the average amount in the last three months. Shares closed at $22.68, up 22.1 percent.
Kroger shares closed at $36.43 on Thursday, down 1.1 percent.
