The Deal: Spartan Stores Acquires Nash-Finch

NEW YORK ( The Deal) -- Grocery store chain Spartan Stores ( SPTN) announced Monday, July 22, that it agreed to merge with rival Nash-Finch ( NAFC) for about $1.3 billion in stock, including debt, the latest in a string of grocery store deals.

Nash shareholders will receive 1.20 shares of Spartan common stock for each Nash share they own. After the merger closes, expected by the end of the year, Spartan will own 57.7% of the new combined company while Nash shareholders will own the remaining 42.3%.

Minneapolis-based Nash operates 75 stores mainly in the Midwest including Nebraska, North Dakota, Ohio and Iowa under the Family Fresh Market, Bag 'n' Save, Sun Mart and EconoFoods brands. It also has a food distribution division and a military distribution channel.

Spartan of Grand Rapids, Mich., owns 102 grocery stores, mostly in Michigan under the Family Fare Supermarkets, Glen's Markets and D&W Fresh Markets brands. It has its own food distribution channel as well. Both companies have their own self-titled private label food brands.

The new combined company will have about $7.5 billion in annual sales on a pro forma basis, with 177 retail stores along with 22 distribution centers across 37 states.

The merger agreement does not allow for a go-shop period. Nash has to pay Spartan a termination fee of up to $12 million if it accepts another bid.Spartan CEO Dennis Eidson said Monday that the new combined company will have more financial strength to expand geographically and be able to compete better in the consolidating grocery store sector. "Together, we will create one of the premier grocery wholesaler and retail operators with a comprehensive portfolio of high quality brands," Eidson said.

Nash CEO Alec Coving added: "The complementary operation and outstanding strategic fit of these two companies create significant value for both companies' shareholders."

Eidson will lead the new combined company and Covington will stay on in an advisory role during the transition period.

The two companies expect to reach up to $50 million in annual synergies by the third full year of operations.

Retailers have had an appetite for regional grocery store chains of late. Earlier this month, Kroger agreed to acquire Harris Teeter Supermarkets for about $2.4 billion to expand its presence in the mid-Atlantic and Southeast. Also this month, Brampton, Ontario-based Loblaw agreed to acquire Toronto's Shoppers Drug Mart for about $12 billion.

On July 15, Arden Group hired Moelis & Co. to shop its 16 Gelson's grocery stores in Southern California.

Moelis' Ken Viellieu, Rick Leaman and Steve Bloom advised Spartan which was represented by Warner Norcross & Judd LLP.

Skadden, Arps, Slate, Meagher & Flom LLP represented Spartan's board.

J.P. Morgan Securities LLC and Morgan, Lewis & Bockius LLP's David Pollak and Jonathan Morris advised Nash.

Spartan shares opened 13.5% higher, to $24.07, on Monday morning with its market capitalization near $523 million. Nash shares opened 12.5% higher, to $28.60, on Monday morning, giving it a market cap of $354 million.

Written by Demitri Diakantonis

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