Adds Online Technology and
Fulfillment Platform to Accelerate Growth Into eCommerce Channel
and New Markets
Vitacost.com Shareholders to Receive
$8.00 Per Share in Cash
The Kroger Co. (NYSE:KR) and Vitacost.com, Inc. (Nasdaq:VITC), a
leading online retailer of healthy living products, today announced
a definitive merger agreement under which Kroger will purchase all
outstanding shares of Vitacost.com for $8.00 per share in cash, or
approximately $280 million.
The purchase price represents a premium of 51% to Vitacost.com's
closing share price on Feb. 19, 2014, the day before a major
Vitacost.com shareholder publicly asked the company to evaluate
strategic alternatives. 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 Vitacost.com
common stock. Any shares of Vitacost.com common stock not acquired
in the tender offer promptly will be acquired by Kroger in a
subsequent merger. The tender offer and merger are subject to
Vitacost.com stockholders tendering at least a majority of the
outstanding shares of Vitacost.com common stock in the tender
offer, certain regulatory approvals and other customary closing
conditions. The transaction is not subject to any financing
condition. Holders of approximately 26.2% of the outstanding
shares of Vitacost.com common stock have agreed to support the
transaction and tender their shares in the tender offer. The
transaction is expected to close in the third calendar quarter of
2014.
Vitacost.com brings to Kroger its strong position as one of the
largest pure eCommerce companies in the nutrition and healthy
living market, a team with extensive eCommerce experience, and a
substantial platform that includes technology and ship-to-home
fulfillment centers to serve customers in all 50 states and
internationally. Vitacost.com offers more than 45,000 products
including vitamins, minerals, herbs, supplements, sports nutrition,
beauty care products and natural and organic foods to approximately
2.3 million active customers. The company has more than 800
associates and operates distribution centers in Lexington, NC and
Las Vegas, NV, and a customer service center in Lexington, NC.
"We are delighted to welcome Vitacost.com to the Kroger family,"
said Rodney McMullen, Kroger's chief executive
officer. "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. 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. At the same time, we will build on Vitacost.com's
eCommerce platform by integrating it with our existing digital
offerings to create exciting new levels of personalization and
convenience for our customers."
"We are excited to join such a tremendous organization and
believe this will be an outstanding partnership," stated Jeffrey
Horowitz, Chief Executive Officer of Vitacost.com. "This
transaction represents a significant premium for our shareholders
and the company will benefit by leveraging Kroger's scale and
resources to further drive the online healthy living industry to
new heights."
Operational Highlights
Vitacost.com's platform is highly complementary to Kroger's
existing businesses and enhances the company's growth strategy.
Vitacost.com's leadership in nutrition and wellness products,
including its proprietary brands, complements Kroger's already
fast-growing natural foods business and Simple Truth Organic and
Simple Truth corporate brand offering.
The company's eCommerce platform will enable Kroger to serve
customers through ship-to-home orders in all 50 states, including
16 states that are currently not served by Kroger supermarkets,
expanding Kroger's reach into new US markets as well as
internationally. Vitacost.com's website and mobile app offer
robust product information, rich content including recipes, videos
and customer reviews, and "Set & Save" subscriptions for
thousands of items.
Building on Vitacost.com's technology and fulfillment platform
and linking it to Kroger's existing digital capabilities will
accelerate Kroger's omnichannel strategy. Millions of
customers already plan their shopping online using Kroger's
cloud-based shopping list and weekly ad through the company's
mobile apps and Kroger.com, and more than one billion digital
coupons have been downloaded since 2009. Kroger offers an
order online, deliver-to-home service in its King Soopers division
in Denver, and continues to learn from Harris Teeter's successful
Express Lane model, which offers customers the ability to order
online and pick up at their local store in 154 locations. With
Vitacost.com, Kroger will offer customers the convenience to order
online and ship to their door with an expanded assortment
online.
Following closing, Vitacost.com will operate as a subsidiary of
The Kroger Co. and continue to operate its facilities in Boca
Raton, FL., Lexington N.C. and Las Vegas NV.
Financial Highlights
Kroger will finance the transaction with debt. The company
expects to achieve a 2.00 - 2.20 net debt to EBITDA ratio by
mid-to-late 2015. Kroger is committed to managing its free
cash flow to achieve this goal in order to maintain its current
investment grade credit rating.
The company also confirmed its net earnings per diluted share
growth guidance range of $3.19 to $3.27 for fiscal
2014. Kroger expects to maintain its current long-term net
earnings per diluted share growth rate of 8 - 11%, plus a
growing dividend.
Vitacost.com reported annual revenue of $382.7 million in fiscal
2013. Vitacost.com reported approximately 2.3 million total active
customers as of the end of its first quarter of fiscal 2014, which
ended March 31, and reported shipping 1.5 million orders.
Weil, Gotshal & Manges LLP is acting as legal advisor to
Kroger. Jefferies LLC is acting as exclusive financial advisor
to Vitacost.com. Wilson, Sonsini, Goodrich & Rosati is
acting as legal advisor to Vitacost.com.
Conference Call Today
Kroger chief financial officer Mike Schlotman will host a
conference call for analysts and investors today, July 2, 2014, at
9:00 a.m. (ET) to discuss this announcement in further detail. To
join this conference call, visit ir.kroger.com. An on-demand replay
of the webcast will be available from approximately 11:00 a.m. (ET)
today through Wednesday, July 16, 2014.
About Kroger
Kroger, one of the world's largest retailers, employs more than
375,000 associates who serve customers in 2,642 supermarkets and
multi-department stores in 34 states and the District of Columbia
under two dozen local banner names including Kroger, City Market,
Dillons, Food 4 Less, Fred Meyer, Fry's, Harris Teeter, Jay C, King
Soopers, QFC, Ralphs and Smith's. The company also operates
787 convenience stores, 324 fine jewelry stores, 1,261 supermarket
fuel centers and 37 food processing plants in the
U.S. Recognized by Forbes as the most generous company in
America, Kroger supports hunger relief, breast cancer awareness,
the military and their families, and more than 30,000 schools and
grassroots organizations. Kroger contributes food and funds equal
to 200 million meals a year through more than 80 Feeding America
food bank partners. A leader in supplier diversity, Kroger is a
proud member of the Billion Dollar Roundtable and the U.S. Hispanic
Chamber's Million Dollar Club.
About Vitacost.com, Inc.
Vitacost.com, Inc. (Nasdaq:VITC) is a leading online retailer of
health and wellness products, including dietary supplements such as
vitamins, minerals, herbs and other botanicals, amino acids and
metabolites, as well as cosmetics, organic body and personal care
products, pet products, sports nutrition and health foods.
Vitacost.com, Inc. sells these products directly to consumers
through its website, www.vitacost.com. Vitacost.com, Inc. strives
to offer its customers the broadest selection of healthy living
products, while providing superior customer service and timely and
accurate delivery.
Additional Information and Where to Find It
The tender offer has not yet commenced. This communication is
for informational purposes only and is neither an offer to purchase
nor a solicitation of an offer to sell shares of Vitacost.com, Inc.
(the "Company"), nor is it a substitute for the tender offer
materials that The Kroger Co. ("Parent") and Vigor Acquisition
Corp. ("Acquisition Sub"), a wholly-owned subsidiary of Parent,
will file with the Securities and Exchange Commission ("SEC") upon
commencement of the tender offer. At the time the tender offer is
commenced, Parent and Acquisition Sub will file with the SEC tender
offer materials on Schedule TO, and the Company will file with the
SEC a Solicitation/Recommendation Statement on Schedule 14D-9, with
respect to the tender offer. The tender offer materials (including
an Offer to Purchase, a related Letter of Transmittal and certain
other tender offer documents) and the Solicitation/Recommendation
Statement will contain important information. Holders of shares of
the Company are urged to read these documents carefully when they
become available, because they will contain important information
that holders of Company securities should consider before making
any decision regarding tendering their securities. The Offer to
Purchase, the related Letter of Transmittal and certain other
tender offer documents, as well as the Solicitation/Recommendation
Statement, will be made available to all holders of shares of the
Company at no expense to them. The tender offer materials and the
Solicitation/Recommendation Statement will be made available for
free at the SEC's web site at www.sec.gov. Additional copies of the
tender offer materials may be obtained at no charge by sending a
written request to Parent at The Kroger Co., 1014 Vine Street,
Cincinnati, OH 45202-1100, Attention: General Counsel.
Forward-Looking Statements
This press release contains certain forward-looking statements
about the future performance of Kroger. These statements are based
on management's assumptions and beliefs in light of the information
currently available to it. These statements are indicated by words
such as "expect," "intend," "guidance," "will" and similar
words. Various uncertainties and other factors could cause
actual results to differ materially from those contained in the
forward-looking statements. These include the specific risk factors
identified in "Risk Factors" and "Outlook" in Kroger's annual
report on Form 10-K for our last fiscal year and any subsequent
filings, as well as the following:
- Our ability to achieve earnings and cash flow goals may be
affected by: labor negotiations or disputes; changes in the types
and numbers of businesses that compete with us; pricing and
promotional activities of existing and new competitors, including
non-traditional competitors, and the aggressiveness of that
competition; our response to these actions; the state of the
economy, including interest rates, the inflationary and
deflationary trends in certain commodities, and the unemployment
rate; the effect that fuel costs have on consumer spending;
volatility of fuel margins; changes in government-funded benefit
programs; manufacturing commodity costs; diesel fuel costs related
to our logistics operations; trends in consumer spending; the
extent to which our customers exercise caution in their purchasing
in response to economic conditions; the inconsistent pace of the
economic recovery; changes in inflation or deflation in product and
operating costs; stock repurchases; the effect of brand
prescription drugs going off patent; our ability to retain
additional pharmacy sales from third party payors; natural
disasters or adverse weather conditions; the success of our future
growth plans; and the successful integration of Harris
Teeter. Our ability to achieve earnings goals may also be
affected by our ability to manage the factors identified
above.
- Our ability to use free cash flow to continue to maintain our
investment grade debt rating and repurchase shares, pay dividends,
and fund capital investments, could be affected by unanticipated
increases in net total debt, our inability to generate free cash
flow at the levels anticipated, and our failure to generate
expected earnings.
- Our commencement of a tender offer will be contingent upon the
merger agreement not being terminated prior to the commencement of
the offer. The requirement to consummate the merger will be
contingent upon the merger agreement being in effect and the
conditions to the merger being satisfied or waived. The
closing of the transaction could fail to occur within the third
calendar quarter of 2014 if the tender offer does not achieve the
anticipated results, if the conditions to closing are not satisfied
or are not satisfied in a timely manner, or if the merger agreement
is terminated as provided in the agreement.
- Our ability to grow Vitacost.com's position in the market, to
build on Vitacost.com's platform by integrating it with our
existing digital offerings, and to offer convenience to our
customers to order online will depend primarily on the reaction of
Vitacost.com's competitors and the extent to which the Vitacost.com
platform can be expanded to include Kroger's current and future
offerings.
- Our ability to finance the transaction with debt will depend on
the availability of the debt markets, including commercial paper,
our credit facility, and other sources of debt financing.
We assume no obligation to update the information contained
herein. Please refer to Kroger's reports and filings with the
Securities and Exchange Commission for a further discussion of
these risks and uncertainties.
CONTACT: Media Contacts:
Kroger, Keith Dailey, 513 762-1304;
Vitacost.com, Kathleen Reed, 561 982-4180 #2292
Investor Contacts:
Kroger, Cindy Holmes, 513 762-4969;
Vitacost.com, Kathleen Reed, 561 982-4180 #2292
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