Shareholders of Kroger Co., the nation's largest grocery chain, Tuesday approved the purchase of Fred Meyer Inc., the owner of Ralphs and Food 4 Less.
The merger, which is expected to receive regulatory approval within a month, will create a supermarket chain of 2,200 stores in 31 states from California to the Carolinas. Executives of Cincinnati-based Kroger say the increased purchasing power of the combined company will help it shave $225 million in costs over the next three years and increase earnings 16% to 18% next year.
But it will hardly be noticeable to Southern California shoppers. Kroger said it will keep the name and local management of the Compton-based Ralphs and Food 4 Less chains. And, because Kroger operates no Southern California stores, it said it plans no store closures or layoffs.
"From the customer side, there are going to be very few changes," said Lynn Marmer, a spokeswoman for Kroger. "The Ralphs and Food 4 Less stores will continue to have the same merchandise and banners."
Only in Arizona, where chains operated by Kroger and Fred Meyer go head to head, will there be changes. Kroger said it will close its Fry's Food Stores distribution center, which employs more than 450 people in Phoenix, but keep the Smith's Food & Drug Stores distribution center owned by Fred Meyer. However, Kroger will convert the Smith's stores to Fry's.
Kroger and Portland, Ore.-based Fred Meyer agreed to merge last October in an effort to cut costs, secure bigger discounts from suppliers and reportedly to help Kroger fend off a takeover attempt by Safeway, which owns Vons.
Kroger has agreed to acquire Fred Meyer for stock, worth $8 billion when the deal was announced, and will assume $5 billion of the retailer's corporate debt. The combined operation, which will be based in Cincinnati, will have 300,000 employees and $43 billion in annual sales.
The deal was engineered by grocery tycoon Ronald Burkle, chairman of Fred Meyer, who will become a director of Kroger's board. Separately, the Los Angeles investor is developing an online grocery company.
Kroger shares closed at $58.44 on the New York Stock Exchange Tuesday, down $1.06 as investors reacted to its conservative earnings projections.
"There's a lot of synergies that are going to come from combining the buying," said Meredith Adler, an analyst for Lehman Bros. in New York. "There may have been some people who were hoping they'd be a little more optimistic."