Novice Investing - Should Kroger Marry Albertson?

Date: Monday 01st 2008f December 2008 05:49:19 PM

Should Kroger Marry Albertson? - 10/23/2005

By: Novice Investing Staff

Rumors circulated that Kroger Co. (KR) had submitted a bid for fellow grocers Albertsons Inc. (ABS). A bid in the high $ 20s will value ABS in the range of $ 10.7 Billion. In addition, Albertsons has a $ 6.5 Billion of net debt. This brings total cost to $ 17.2 Billion. Should Kroger buy Albertsons at this price level?

To be fair, Albertson has an annual sales of $ 39 Billion. Profit, however, just came in at around $ 400- $ 500 Million. Kroger, in essence, is buying Albertson at 34 times earnings. Ok, perhaps, they can wring us some cost savings into the merger. But, please remember that the reason Albertson was on sale is that they have difficulty competing with the like of Wal-Mart. Albertsons' total sales will most likely be lower if they continue doing the same thing they did.

Kroger's latest balance sheet shows that it has less than $ 1 Billion in the bank. Therefore, we believe the purchase will be mostly stock based, instead of paying for cash. This is dilutive to the shareholders, especially when Kroger is paying Albertson at an estimated 34 times earnings. It is true that Albertson might have some valuable real estate but at this price, we believe that the price for Albertson is way too steep for our taste.


END
For preliminary research, you can browse our collection of annual reports here
You can also view other helpful commentary by clicking here

Disclaimer: The sole purpose of this article is educational. This article is merely the opinion of the writer and is not in any way a buy/sell recommendation regarding Kroger Co. (KR) or any other securities.

[Resources] [Forum] [Link Partner ] [Novice Investing Directory ] [ Submit Your Article Here ]