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Kroger merger spurs stock split

FTC hasn't OK'd Fred Meyer-Kroger deal

— The Associated Press

CINCINNATI -- The Kroger Co., the nation's largest grocery chain, will split its stock 2-for-1 when its $12.8 billion merger with Fred Meyer Inc. gets government approval, shareholders were told Thursday.

The new company will have about 2,200 stores in 31 states from coast to coast, with about 300,000 employees. It will keep the name Kroger and remain based in Cincinnati. Fred Meyer will operate as a unit of Kroger, retain its name and maintain headquarters in Portland.

The combination of Fred Meyer and Kroger will generate extraordinary profit potential in merchandising, store operations and distribution, said Joseph Pichler, Kroger's chairman and CEO.

Following our merger, 10 cents of every dollar spent in an American food store will be spent in one of our stores.

He added that as the nation's largest food retailer, the company will generate substantial economies of scale, increased purchasing power and significant cost savings.

Kroger was No. 36 on this year's Fortune 500 list, with $28.2 billion in sales. Fred Meyer was No. 104, at $14.9 billion. The combined $43.1 billion would put Kroger at No. 15.

Analyst George Thompson, who follows Kroger for Prudential Securities in New York, said there was no reason to suspect that regulators have qualms about the merger, which has been approved by shareholders of both companies.

It's a very good fit, Thompson said.

It almost seems to me that the federal government has very little to complain about. Geographically, Meyer is where Kroger isn't.

Most of Kroger's stores are in the Midwest and South; most of Meyer's are in the West. They overlap only in Texas and Arizona.

The merger still needs approval by the Federal Trade Commission. Thompson said the slowness in obtaining FTC approval was not cause for concern.

The government is backed up in approvals for deals in general, not just the Kroger-Meyer merger, he said.

Announcement of the stock split, which is set to occur on the first business day that falls 10 days after completion of the merger, was not a surprise.

You knew it would split at some point, Thompson said.

In theory, stock splits really don't mean much. But in fact, they help the price of the stock. I would suspect that today's increase, for the most part, is due to that.

Kroger stock, which has slipped more than 20 percent since the merger was announced in October, was up — at midday, trading at $53.375.

The combined Kroger and Fred Meyer Co. will generate substantial economies from volume-based purchasing in food, health and beauty aids, general merchandise, seasonal items, supplies, equipment and raw materials for our plants, said Bob Miller, vice-chairman and CEO of Fred Meyer.

He will be Kroger's chief operating officer and vice-chairman after the merger.

Both Kroger and Fred Meyer have powerful private label programs, Miller said. combining the best of each, we will become the industry leader in this rapidly growing and highly profitable segment of our business.