ClownLoach wrote: ↑December 12th, 2024, 12:54 pm
pseudo3d wrote: ↑December 12th, 2024, 11:18 am
wnetmacman wrote: ↑December 12th, 2024, 10:37 am
I don't believe Albertsons is in a position to purchase anybody any more unless Kroger gives them the breakup fee.
Realistically, why would Kroger sell off its home base? While I know the west coast for them is a highly lucrative area, I cannot see Kroger keeping only it to run on. The Kroger home base is what makes them Kroger. For the biggest part of their history, that has been all of the company.
Additionally, I think this merger had two goals:
1. West Coast domination
2. Chicago
As a secondary, Texas domination to fight HEB - they're scared, because they already lost San Antonio. Houston is okay but crowded. Dallas was theirs to own against a weak Albertsons and Tom Thumb, and HEB is knocking the door down to get in.
"Would be funny", didn't say it could actually happen (With their ego, Kroger's economic position would have to be dire). Besides, both #1 and #2 are stuff that Kroger can do easily without spending $25B. $25B could fix QFC, Mariano's, and other problem markets. Texas is a wash. There's no Albertsons stores in San Antonio—hasn't for over twenty years. Houston Kroger vastly outnumbers Randalls (with the exception of Midtown I believe every remaining Randalls has a nearby Kroger) and does better volume than them (ironically the two planned divested stores were in the areas where H-E-B closed stores but Randalls/Kroger didn't), and they've lost the plot as H-E-B rolled into the more urban areas where Kroger was dominant. Dallas-Fort Worth has some inner neighborhoods with Tom Thumb but they (Kroger) still do substantially better volume per store on average. The only major remaining market is Austin, where Randalls has barely expanded in the last ten years (they at least built new stores, but still a net loss) and isn't likely to move the needle with H-E-B especially as they continue to expand and Randalls is largely stuck with small stores that date back to the 1970s or even earlier. El Paso I guess would work (and that Horizon City store looks nice)...but also a bunch of tiny United stores in small markets (not worth a lot, and we all saw how Kroger has been treating the Central Division).
To me, all of the above are reasons why this was first and foremost a Real Estate transaction for Kroger. We are learning about a surprisingly high number of money losing Fred Meyer stores for example, exactly what I predicted about the banner, that are guaranteed to only be open for future real estate sale to developers. The more you control in the market, the more opportunities you will come across where your site can be acquired for hundreds of millions and you won't lose share since you own other nearby sites. That is why they were willing to spend $25B - they were getting a lot more than just buying higher rankings in a couple of key markets. They were likely going to be able to repay themselves for most of the purchase price over the next decade or so as they accelerated development deals. When you're afraid to sell your one Fred Meyer in the area because you only own a small QFC to absorb the business, but you now also own three Safeway sites surrounding the big barn it's an easy sale. Those kinds of opportunities are all over the West Coast.
For Albertsons, this was entirely operation by puppet strings by Cerberus and Apollo. Now that Cerberus no longer wants to sell there will be no more deals. Although Albertsons is in outstanding shape, they could borrow ten billion plus easily and not even be considered heavily indebted. They don't need the measly $600M breakup fee to be a buyer in the market. They're on track to be debt free in the next year or so which means an $80B business to borrow against.
To build off this, I think there's a good chance Albertsons will be in a better spot than Kroger in a couple years. Quite honestly, I think Kroger needed Albertsons more than Albertsons needs them. Kroger will be fine without them, but I think Kroger could have benefitted from some of Albertsons leadership, but ironically Kroger kissed that idea goodbye and planned on casting off most of Albertsons c-suite to C&S, or other companies such as Gelsons.
Yes, Albertsons truly doesn't need the $600M, however I do think they are owed the fee. Yes, Albertsons did raise the flag, but quite honestly there were actions Kroger didn't take and now they are paying the price for it. At the very least if Albertsons does get it's breakup fee, they will have some cash flow which hopefully would be invested back into it's stores. I could see Albertsons exploring acquisitions in a couple years, but the best move would be to continue investing in what they have for now.
Kroger had obvious goals, such as better control of NorCal and Chicago, but they would also have had other benefits, such as potentially building the Ralphs division store count back up, which makes up for the numerous closures over the past decade. They were gonna dump QFC but in turn get a good majority of Safeway stores in the area which has a better reputation in the Seattle Metro. Yeah, certainly more Safeways would have had to be divested for it to go through, but at least Kroger would have control of the more popular name. Even if Kroger divested every current Ralphs in SoCal in favor of all the Albertsons Cos stores, their store count in the region would still increase, and they would be able to re-enter some markets that they have either left entirely or heavily retreated from. I truly think Kroger could have tried to make this work with some drastic actions, but their ego on keeping as many stores as possible simply prevents them from considering drastic actions that would have been needed.
Just throwing it out there. Regardless I am thankful that this merger is dead. I truly think heavy investment in remodels and repairs in Albertsons and Kroger stores would end permanently if this merger somehow made it through.
