* Deal at $800 mln including debt
* Cash offer of $3.60/share at 65 pct premium
* Deal has equity value of $177.8 mln
* Kroger to get 151 retail stores and 101 pharmacies (Adds comment from Kroger’s adviser, updates stock closing)
Nov 11 (Reuters) - Supermarket operator Kroger Co said it would buy smaller chain Roundy’s Inc for $800 million including debt to expand in Wisconsin and the Chicago area.
The $3.60 per share cash offer represents a 65 percent premium to Roundy’s Tuesday close of $2.18.
The deal has an equity value of $177.8 million, based on Roundy’s outstanding shares as of Aug. 3.
Milwaukee-based Roundy’s operates supermarkets under the Pick ‘n Save, Copps and Metro Market and Mariano’s banners, primarily in the upper Midwest.
Roundy’s shares closed up 64 percent at $3.57 on Wednesday. Kroger stock closed down 0.6 percent at $37.03.
The deal will give Kroger 151 retail grocery stores and 101 pharmacies, for a total of 2,774 stores in 35 states.
The grocer will also gain presence in new markets such as Milwaukee, Madison and Northern Wisconsin and expand in the Chicago area, where it operates Ralphs and Food 4 Less stores.
Telsey Advisory Group analyst Joseph Feldman said that at 6.8-7 times EBITDA, it did not appear Kroger was overpaying.
Kroger is facing increasing competition from traditional grocers such as Supervalu Inc and Albertsons, as well as losing sales to mass market chains such as Wal-Mart Stores Inc and Target Corp, which are expanding their grocery and fresh foods businesses.
The company bought grocer Harris Teeter in 2013 to expand in the mid-Atlantic region, and last year it acquired health products retailer Vitacost.com to expand in the fast-growing health and wellness niche.
“Kroger’s scale, financial discipline and exceptional management team should help Mariano’s continue to improve the customer experience in the Chicago market and compete more effectively with Walmart, Target, Whole Foods and other strong food retailers in Wisconsin,” said Scott Moses, who heads Food, Drug & Specialty Retail M&A at Sagent Advisors.
Roundy’s, which has not turned a profit in the past three quarters, generates about 65 percent of its sales in Wisconsin.
Roundy’s blamed store openings by competitors for a drop in its third-quarter same-store sales and weaker-than-expected results.
Kroger plans to finance the transaction with debt, and refinance Roundy’s existing debt of $646 million.
The grocer expects the deal to add slightly to earnings in the first year after closing, and sees costs savings of about $40 million over time.
BofA Merrill Lynch and Sagent were Kroger’s financial advisers, while J.P. Morgan Securities is advising Roundy’s. Weil, Gotshal & Manges is legal adviser to Kroger, while Kirkland & Ellis is advising Roundy’s. (Reporting by Ramkumar Iyer and Abhijith G in Bengaluru and Lauren Hirsch in New York; Editing by Ted Kerr and Gopakumar Warrier)