UPDATE 1-Food distributor Spartan Stores to merge with Nash Finch

Mon Jul 22, 2013 8:38am EDT

July 22 (Reuters) - Spartan Stores Inc, the ninth-largest grocery distributor in the United States, will merge with Nash Finch Co in a deal that gives it access to U.S. military stores at home and abroad.

The companies valued the all-stock deal at $1.3 billion, including debt at both. Spartan Stores shares rose 20 percent to $25.50 in premarket trading on Monday, while Nash Finch's shares were up 27 percent at $32.25.

Shareholders in Nash Finch, which derives about half of its sales from military-related businesses, will receive 1.20 shares of Spartan Stores for each share they own.

Spartan was valued at $464 million as of Friday close, while Nash Finch had a market capitalization of $312 million.

On closing, shareholders of Spartan Stores will own about 57.7 percent of the combined company, while Nash Finch shareholders will hold about 42.3 percent.

The merger comes within a month of Kroger Co buying regional grocer Harris Teeter Supermarkets Inc in a $2.5 billion deal.

Military commissaries sell groceries and household goods to personnel and retirees at cheaper prices, while exchanges are retail stores operating on military installations and also include other services such as barbershops and fast food outlets.

Spartan supplies to about 390 independent grocery outlets in Michigan, Indiana and Ohio, and has 102 owned stores in Michigan.

The merger is expected to save about $50 million annually by the third year, and start adding to adjusted earnings within the first full fiscal year, the companies said.

Amazon.com Inc, in June, had also unveiled a new version of its successful Prime shipping service to attract more frequent shoppers with groceries and other everyday household products.

Moelis & Co gave financial advice to Spartan Stores, while Nash Finch's financial adviser was J.P. Morgan Securities Inc. Warner Norcross & Judd LLP was legal counsel for Spartan Stores and Nash Finch's legal adviser was Morgan, Lewis & Bockius LLP.