Vitacost acquired by Kroger
The deal represents a 51 percent premium on Vitacost.com’s share price as of Feb. 19 – the day before a major Vitacost.com shareholder publicly asked the company to evaluate strategic alternatives that included a sale.
Kroger said it will use debt to finance the deal, which is expected to close in the third quarter.
Investors responded to the announcement by sending Vitacost.com’s share price up 26.9 percent, or by $1.69, to close at $7.97. Kroger’s share price dropped 10 cents to close at $49.43.
Vitacost.com is based in Boca Raton, Fla. It offers more than 45,000 products including vitamins, minerals, herbs, supplements, sports nutrition, beauty care products and natural and organic foods to 2.3 million customers.
The companies said Vitacost.com will operate as a Kroger subsidiary with existing management. It will continue to operate its facilities in Lexington, Boca Raton and Las Vegas. Vitacost.com has 829 employees overall.
There are 408 full-time workers at the Lexington facility, including 78 who work for Nutra-Pharma Manufacturing Corp. of N.C. based on a manufacturing outsourcing agreement.
In a statement to Vitacost.com employees, listed as a regulatory filing, Kroger said there are no plans for job cuts.
“Kroger expects the experienced and talented Vitacost.com team to stay in place, and we see tremendous growth potential in your business,” Kroger said. “We are counting on your expertise as we move forward together as partners. From our view, duplication of roles between our organizations is almost nonexistent, and we don’t see an issue with that.”
Kroger said its main incentive is acquiring Vitacost.com’s e-commerce platform which includes ship-to-home orders in all 50 states, including 16 states not served by Kroger supermarkets. The deal is expected to assist Kroger in gaining new U.S. and international sales.
“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,” Rodney McMullen, Kroger’s chief executive, said in a statement.
“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 pick up 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,” McMullen said.
Jeffrey Horowitz, Vitacost.com’s chief executive, said the deal “represents a significant premium for our shareholders.”
“The company will benefit by leveraging Kroger’s scale and resources to further drive the online healthy living industry to new heights.”
Peter Tourtellot, managing partner of Anderson Bauman Tourtellot Vos, called the deal “a brilliant move on the part of Kroger as it addresses a segment of the business that is growing.”
News of the deal comes after the two largest shareholders in Vitacost.com agreed on March 25 to expand the company’s board of directors by one member to help quell a potential takeover initiative.
Kroger will make an offer for all of the outstanding shares of Vitacost.com’s common stock. Any shares not acquired will be acquired by Kroger in a subsequent merger.
The companies said holders of 26.2 percent of Vitacost.com stock have agreed to support the transaction and tender their shares. Great Hill Partners LLC declared in a regulatory filing Thursday that it owns 19.54 percent of Vitacost.com, while Osmium Partners LLC previously declared it owns 8.2 percent.
On Feb. 20, Consac LLC challenged Vitacost.com officials to put the company up for sale “to unlock shareholder value.”
Ryan Drexler, Consac’s president, said at that time that Vitacost.com’s market share and distribution network “will be of interest to several significant industry players and other retailers, who will be able to better leverage the company’s strengths within a larger, better-capitalized entity.”
Vitacost.com Inc. reported in May a larger loss in the first quarter of $3.9 million compared with a loss of just under $3 million a year ago.
Vitacost.com prefers to focus on increasing EBITDA, or earnings before interest, taxes, depreciation and amortization. In that financial scenario, which some analysts and investors favor as a better measuring stick of performance for small corporations, it had a loss of $700,000 in adjusted EBITDA compared with a loss of $300,000 a year ago.
“Kroger has demonstrated over the years they are comfortable in allowing those companies who they buy to operate without everything being driven from a central operation,” Tourtellot said.
“It is because of this culture I think Vitacost.com will continue to grow and be vibrant. They will also help strengthen Kroger’s online offerings in their various divisions, as will Harris Teeter.
“I compare Kroger’s strategy to that of VF Corp. VF wants to be in every retail apparel segment and related items, and this is exactly what Kroger is doing with this acquisition.”
Daniel Kurnos, an analyst with Benchmark Research, called the Kroger acquistion "a testament to Vitacost.com's ability to expand outside of the core vitamin category."
"It is also indicative of increasing competition in the vitamin space and its inability to scale organically. We do not expect there will be a second bidder."
Source: journalnow.com
