Spartan Stores Inc., a leading regional grocery distributor and retailer, and Nash Finch Co., one of the leading food distribution companies in the United States, have entered into a definitive merger agreement under which Spartan Stores and Nash Finch will combine in an all-stock merger valued at approximately $1.3 billion, including existing net debt at each company.
The combination creates a leader in the grocery wholesale, retail and military commissary and exchange channels with pro forma annual sales of approximately $7.5 billion. Together, Spartan Stores and Nash Finch will have 22 distribution centers covering 37 states, 177 retail stores and will be the leading distributor to military commissaries and exchanges in the United States.
The combined company will have significant scale and geographic reach to provide value-added distribution services to a diversified customer base and drive new growth opportunities through increased customer penetration, new customer additions and expansion into new market segments. The combined company will also have a comprehensive portfolio of strong private brands including Spartan Stores’ "Spartan' brand and Nash Finch’s "Our Family" and "Nash Bros. Trading Co." brands.
Under the terms of the transaction, which has been unanimously approved by the boards of directors of both companies, Nash Finch shareholders will receive a fixed ratio of 1.20 shares of Spartan Stores common stock for each share of Nash Finch common stock they own. Upon closing, which is expected by the end of 2013, Spartan Stores shareholders will own approximately 57.7 percent of the equity of the combined company and Nash Finch shareholders will own approximately 42.3 percent.
“This transformational transaction provides a unique opportunity to bring together Spartan Stores’ grocery distribution and retail operations in Michigan, Indiana and Ohio with Nash Finch’s leading position in grocery distribution to military commissaries and exchanges and its complementary wholesale grocery network throughout the U.S," said Dennis Eidson, president and chief executive officer of Spartan Stores. "Together, we will create one of the premier grocery wholesaler and retail operators, with a comprehensive portfolio of high-quality private brands, nationwide distribution services and a strong platform for future growth. By combining our resources, expertise and talent we will become a stronger and more efficient organization with an enhanced ability to leverage our size, geographic reach and hybrid business model to better compete in the evolving grocery industry. In addition, the scale of the combined company will provide efficiencies and savings in purchasing and strengthen our ability to serve our independent retail customers, military commissaries and exchanges and retail consumers. At the same time, the combined company will have greater financial flexibility to drive growth, which will provide opportunities for many employees and deliver increased value to shareholders.”
Alec Covington, president and CEO of Nash Finch, said, “This transaction is consistent with our vision to become the largest and most admired food distributor in the U.S. The complementary operations and outstanding strategic fit of these two companies create significant value for both companies’ shareholders. Our shared vision to provide best-in-class services to our wholesale customers and attractive formats for our retail consumers, as well as our continued commitment to serving our nation’s military heroes and their families, at home and abroad, creates a powerful platform for growth over the long term. In addition, Spartan Stores and Nash Finch share a common culture and passion for integrity, teamwork, innovation and dedication to the customers we serve.”
Eidson will serve as president and CEO of the combined company. Covington will remain with the combined organization in an advisory role to help ensure a smooth transition. The combined company, which will retain a presence in both Minneapolis and Grand Rapids, MI, will include members of each company’s experienced management teams and employee bases. Nash Finch’s military business will continue to conduct its operations as it has in the past and will remain based in Norfolk, VA. Edward Brunot, who currently serves as president of Nash Finch’s military business, will continue to lead that business in the combined organization. Craig Sturken, chairman of Spartan Stores’ board of directors, will serve as chairman of the board of directors of the combined company, which will be comprised of 12 members, with seven being designated by Spartan Stores and five being designated by Nash Finch.
The combined company is expected to achieve approximately $50 million in annual cost synergies by the third full fiscal year of operations, primarily derived from the consolidation of corporate functions, procurement and other operating efficiencies. Including these synergies, the transaction is expected to be accretive to earnings per share, excluding one-time costs, within the first full fiscal year of operations, enabling shareholders of both companies to share in the upside potential of the combined organization. The combined company also expects to consistently continue to return value to shareholders through a dividend which will initially be set at $0.48 per share on an annualized basis.
The transaction is subject to customary regulatory approvals and closing conditions, including the approval of Spartan Stores and Nash Finch shareholders. Moelis & Co. LLC acted as Spartan Stores’ financial advisor. Warner Norcross & Judd LLP acted as Spartan Stores’ legal counsel and Skadden, Arps, Slate, Meagher & Flom LLP acted as counsel for Spartan Stores’ board of directors. Nash Finch’s financial advisor was J.P. Morgan Securities Inc. LLC and its legal advisor was Morgan, Lewis & Bockius LLP.