Kroger Contacts: Fred Meyer Contacts:
Lynn Marmer (media) Mary Burczyk (media)
513/762-4441 503/797-7421
Kathy Kelly (investors) David Jessick (investors)
513/762-4969 or 212/687-8080 503/797-7900
KROGER TO MERGE WITH FRED MEYER TO CREATE THE NATION'S LARGEST
SUPERMARKET COMPANY WITH ANNUAL SALES OF $43 BILLION
Combination Will Have Broadest Geographic Coverage And Widest Spectrum Of
Retail Formats, Substantial Economies Of Scale And Increased Purchasing Power
Cincinnati, OH and Portland, OR, October 19, 1998 -- The Kroger Co.
(NYSE:KR) and Fred Meyer, Inc. (NYSE:FMY) today announced a strategic merger
that will create the nation's largest supermarket company. The combination will
have the broadest geographic coverage and widest spectrum of formats in the food
retailing industry, ranging from multi-department stores to convenience stores.
The combined company, which will be named The Kroger Co. and headquartered
in Cincinnati, will benefit from substantial economies of scale and increased
purchasing power, with annual sales of approximately $43 billion, approximately
2,200 supermarkets in 31 states, and approximately 300,000 employees.
Under the terms of the definitive merger agreement unanimously approved by
the Boards of Directors of both companies, Fred Meyer shareholders will receive
one newly issued share of Kroger common stock for each Fred Meyer common share.
Fred Meyer shareholders will own approximately 38% of the combined company.
Based on last Friday's closing price of Kroger shares, the transaction has a
value of approximately $13 billion including assumed debt. The transaction will
be accounted for as a pooling of interests and is expected to be tax-free to
shareholders. It is expected to close in early 1999 subject to approval of
Kroger and Fred Meyer shareholders, antitrust clearance and customary closing
conditions.
The transaction should be neutral to Kroger's earnings per share in fiscal
1999 and significantly accretive in subsequent years, excluding merger related
costs. On a cash flow basis, the transaction is expected to be immediately
accretive.
Kroger Chairman and Chief Executive Officer Joseph A. Pichler said, "We are
very excited about joining with Fred Meyer to create the largest supermarket
company in America. This is a powerful strategic combination. Together we will
have the #1 or #2 market share in 33 of the nation's largest markets. Fred
Meyer's strength in fast-growing Western markets will complement Kroger's
leading position in the Midwest and Southeast. We will achieve economies of
scale by leveraging purchasing, information technology, manufacturing and
distribution across a much larger store base."
Pichler will be Chairman and Chief Executive Officer of the combined
company. Ronald W. Burkle, Chairman of Fred Meyer, will become Chairman of the
Executive Committee of Kroger's Board of Directors. Robert G. Miller, Vice
Chairman and Chief Executive Officer of Fred Meyer, will become Vice Chairman
and Chief Operating Officer of Kroger. David Dillon continues as President of
Kroger. Burkle, Miller and four other Fred Meyer nominees will join the Kroger
Board, which will expand from 13 to 19 directors. Burkle and Miller have agreed
to vote their shares in favor of the transaction.
Kroger plans to generate annual cost savings of approximately $225 million
within three years, including approximately $75 million in the first year.
Kroger plans to generate these savings through combined procurement of goods and
services, reduced corporate overhead, in-market synergies, and consolidation of
support services.
Kroger will assume the outstanding debt of Fred Meyer and has been informed
by Standard & Poor's that it will maintain its investment grade credit rating.
Kroger has also rescinded its share repurchase program. Kroger and Fred Meyer
have entered into cross options under which each company has been granted an
option to purchase up to 19.9% of the other company's common stock under certain
conditions.
Ronald Burkle said, "I have been a longtime believer in consolidation in
the supermarket industry. Kroger and Fred Meyer represent the ultimate strategic
combination, creating a truly national company."
Robert Miller said, "Both companies enter this combination from positions
of strength, having consistently achieved their growth targets while increasing
efficiencies and improving margins. This is a win/win for both companies, our
shareholders, customers and employees. Fred Meyer shareholders will receive
Kroger stock on a tax-free basis and benefit from the upside potential of the
combination. Kroger shareholders will benefit from Fred Meyer's premier retail
outlets with leading shares in fast-growing markets, distribution centers and
plant operations. I am looking forward to working with Joe Pichler and our teams
to ensure a smooth transition and successful integration of our two companies so
that we remain focused on serving our expanded markets and creating shareholder
value. We have similar management philosophies and corporate cultures, and the
talented employees of both companies will benefit from being part of a larger
organization with minimal geographic overlap and increased growth
opportunities."
Goldman Sachs is financial advisor to Kroger. Salomon Smith Barney and
Donaldson, Lufkin & Jenrette served as financial advisors to Fred Meyer.
Fred Meyer, Inc., headquartered in Portland, Oregon, is one of the nation's
largest food and drug retailers, with annual sales of approximately $15 billion.
The company operates approximately 800 food and general merchandise stores in 12
western states from Alaska to Texas.
The Kroger Co., headquartered in Cincinnati, Ohio, is the largest retail
grocery chain in the United States. Kroger operates 1,398 food stores, 802
convenience stores and has annual sales of approximately $28 billion. Kroger
also operates 34 manufacturing facilities that manufacture products for sale in
all Kroger divisions, as well as to external customers.
This press release includes forward-looking statements which are subject to
risks and uncertainties. Actual results might differ materially from those
projected in the forward-looking statements. Additional information concerning
factors that could cause actual results to materially differ from those in the
forward-looking statements is contained in the Securities and Exchange
Commission filings of both companies.
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