The Kroger Co. and Roundy’s, Inc. have announced a definitive merger agreement under which Kroger will purchase all outstanding shares of Roundy’s for $3.60 per share in cash.

The transaction price represents a premium of approximately 65 percent to the Roundy’s closing share price on November 10, 2015. The terms of the agreement were unanimously approved by the boards of directors of both companies.

Under the terms of the merger agreement, Kroger will commence a tender offer for all of the outstanding shares of Roundy’s common stock. Any shares of Roundy’s common stock not acquired in the tender offer will be acquired by Kroger in a subsequent merger. The transaction is subject to Roundy’s stockholders tendering at least a majority of the outstanding shares of Roundy’s common stock in the tender offer, certain regulatory approvals, and other customary closing conditions. The transaction is not subject to any financing conditions.  Willis Stein & Partners and its affiliates, holders of approximately 7 percent of the outstanding shares of Roundy’s common stock, have agreed to tender their shares. The transaction is expected to close before the end of the 2015 calendar year. The merger agreement contains a 30-day go-shop period, which commences on the date of the merger agreement.

“We are delighted to welcome Roundy’s to the Kroger family,” said Rodney McMullen, Kroger’s Chairman and Chief Executive Officer. “With a team of 22,000 talented associates, outstanding store locations, and a shared commitment to putting customers first, we are excited about Roundy’s future growth.”

“Mergers for Kroger always involve both parties bringing something to the table,” McMullen said. “We admire what Bob Mariano has done with the Mariano’s banner in Chicago, where he has created an urban format that is resonating with customers, and we expect to apply Roundy’s experience to our stores in urban areas around the country. Kroger’s scale and strong financial position will enable Roundy’s to reinvest in its home state of Wisconsin while continuing to grow in Chicago. Together, we are committed to investing in Roundy’s people, communities, stores and merchandising to deliver a fantastic customer experience that will create opportunities for associates, grow customer loyalty and revenue, and create value for shareholders.”

Robert A. Mariano, Chairman of the Board, President and Chief Executive Officer of Roundy’s, Inc. said, “We are excited about becoming part of The Kroger Co. Kroger’s scale, knowledge and experience allows us to accelerate the strategic initiatives we have invested in and makes us a more formidable competitor in the marketplace. This is a great win for our customers, communities,  employees and our shareholders, and I personally look forward to continue to exceed customer and employee expectations. “

Roundy’s brings to Kroger an expanded footprint with a complementary base of 151 stores and 101 pharmacies in new geographies including Milwaukee, Madison and northern Wisconsin, which are served under the Pick ‘n Save, Copps and Metro Market banners. The merger also expands Kroger’s presence with an innovative store format in the Chicagoland area, where Roundy’s operates 34 stores under the Mariano’s banner. Roundy’s also operates two distribution centers in Oconomowoc and Mazomanie, Wisconsin, and a commissary in Kenosha, Wisconsin. Roundy’s had revenues of nearly $4.0 billion for fiscal year 2014.

Financial Highlights
Kroger plans to finance the transaction with debt, and refinance Roundy’s existing debt of $646 million based on market conditions. Consistent with the company’s long-term commitment to returning cash to shareholders, Kroger intends to continue its quarterly dividend and share repurchase program while managing free cash flow to reduce the leverage taken on from this merger. Although the company’s net debt to EBITDA ratio will increase at the time the merger closes, Kroger expects the ratio to remain in the 2.00 – 2.20 range upon closing of the merger. Kroger is committed to maintaining its current investment grade credit rating.

Kroger expects the merger to be slightly accretive to earnings in the first full year after closing, excluding merger-related expenses. The transaction will have no effect on Kroger’s current long-term net earnings per diluted share growth rate of 8 – 11 percent, plus a growing dividend.

While Kroger expects to realize cost savings of approximately $40 million over time, the company plans to reinvest those cost savings to grow the business. Kroger has a strong history of achieving synergy goals. Being patient in achieving those goals reduces the risk of the transaction and sets the stage for sustainable growth.

Operational Profile
Together Kroger and Roundy’s will operate 2,774 supermarkets and employ over 422,000 associates across 35 states and the District of Columbia. Following closing, Roundy’s will continue to operate its stores as a subsidiary of The Kroger Co. and will continue to be led by key members of Roundy’s senior management team. There are no plans to close stores, and associates will have employment opportunities with both companies. Roundy’s headquarters will remain in Milwaukee, Wisconsin.

Kroger and Roundy’s both strive to play a vital role in all of the communities they serve. In 2014, Kroger invested more than $280 million in local communities to provide hunger relief and support for the military and their families, breast cancer awareness programs and more than 30,000 schools and grassroots organizations.  Roundy’s is similarly committed to helping communities through the Roundy’s Foundation. Chartered in 2003, the Roundy’s Foundation mission is to support organizations working to relieve hunger and helping families in crisis due to domestic abuse, neglect and other at-risk situations.

Additional Information
The transaction is expected to close by the end of the 2015 calendar year following the satisfaction of customary closing conditions, including successful completion of the tender offer and regulatory approval. The transaction includes customary breakup fees.