Kroger is expanding into new markets and growing its presence in the e-commerce channel with its acquisition of Vitacost.com, a leading online retailer of vitamins and supplements.
According to the definitive merger agreement, Kroger will purchase all outstanding shares of Vitacost.com for $8 per share in cash, or approximately $280 million.
The purchase price represents a premium of 51% to Vitacost.com's closing share price on Feb. 19, the day before a major Vitacost.com shareholder publicly asked the company to evaluate strategic alternatives. Both companies’ boards of directors unanimously approved the terms of the agreement.
The company will commence a tender offer for all outstanding shares of Vitacost.com common stock. Kroger also plans to acquire in a subsequent merger any shares of the online retailer’s common stock that it does not acquire in the tender offer.
Holders of approximately 26.2% of the outstanding shares of Vitacost.com common stock have agreed to support the transaction and tender their shares in the tender offer. The transaction is expected to close in this year’s third quarter.
Vitacost.com offers more than 45,000 products including vitamins, minerals, herbs, supplements, sports nutrition, beauty care products and natural and organic foods to approximately 2.3 million active customers. The company has more than 800 associates and operates distribution centers in Lexington, North Carolina, and Las Vegas, Nevada, and a customer service center in Lexington, North Carolina.
"We are delighted to welcome Vitacost.com to the Kroger family," said Rodney McMullen, Kroger's CEO. "Vitacost.com's talented team has built an exceptional online retail destination in the growing nutrition and wellness market, with an enviable technology and fulfillment infrastructure. This merger is in line with our growth strategy to enter new markets and new channels, and — along with Harris Teeter's online order and pickup service — accelerates our efforts to provide customers with even more ways to shop. Vitacost.com's core focus on healthy living products is complementary to our fast-growing natural foods business, and we intend to grow Vitacost.com's strong position in the online nutrition market. At the same time, we will build on Vitacost.com's e-commerce platform by integrating it with our existing digital offerings to create exciting new levels of personalization and convenience for our customers."
"We are excited to join such a tremendous organization and believe this will be an outstanding partnership," stated Jeffrey Horowitz, CEO. "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."
According to Kroger, Vitacost.com's position in the nutrition and wellness products space, including its proprietary brands, complements its natural foods business and Simple Truth Organic and Simple Truth corporate brand offering.
The online retailer’s platform will enable Kroger to serve customers through ship-to-home orders in all 50 states, including 16 states that are currently not served by Kroger supermarkets, expanding Kroger's reach into new U.S. markets as well as internationally. Vitacost.com's website and mobile app offer product information, content including recipes, videos and customer reviews, and "Set & Save" subscriptions for thousands of items.
Following closing, Vitacost.com will operate as a subsidiary of Kroger and continue to operate its facilities in Boca Raton, Florida, Lexington, North Carolina, and Las Vegas, Nevada.
Kroger also confirmed its net earnings per diluted share growth guidance range of $3.19 to $3.27 for fiscal 2014.The company, which got off to a strong start this fiscal year, expects to maintain its current long-term net earnings per diluted share growth rate of 8–11%, plus a growing dividend.
Vitacost.com reported annual revenue of $382.7 million in fiscal 2013. It reported approximately 2.3 million total active customers as of the end of its first quarter of fiscal 2014, which ended March 31, and reported shipping 1.5 million orders.
Weil, Gotshal & Manges LLP is acting as legal adviser to Kroger. Jefferies LLC is acting as exclusive financial adviser to Vitacost.com. Wilson, Sonsini, Goodrich & Rosati is acting as legal adviser to Vitacost.com.