Buyout specialist Kohlberg Kravis Roberts & Co. withdrew its $5.03-billion takeover bid for Kroger Co. on Tuesday, saying it has concluded that the supermarket chain is “not for sale at any price.”
The news quickly sent Kroger stock into a slump.
In heavy trading on the New York Stock Exchange, Kroger stock fell $2.625 a share to $55, far below Kohlberg’s cash-and-stock offer that was valued at $64 a share.
In a letter to Kroger, Kohlberg said: “While we are perplexed that the board found our proposal to acquire the company . . . at 28 times earnings to be inadequate, we were not even asked if we were in a position to improve our offer. We can only conclude that the board has decided that the company is not for sale at any price.”
Kohlberg said it did not anticipate making any further proposals.
Paul Bernish, a spokesman at Kroger’s headquarters in Cincinnati, had no comment except to note that the company was proceeding with its previously announced $3.75-billion restructuring plan.
Bidding for Kroger began last month when Maryland’s Haft family offered to acquire the big supermarket chain for $55 a share. Kohlberg came on the scene with a $58.50-a-share offer but last week sweetened the proposal to $64 a share.
Although financial analysts had said Kroger managers might be pressured to accept Kohlberg’s latest offer, the company’s board denounced the proposal last week as inadequate and put its restructuring plan in motion by laying off 300 employees. Kroger also has announced plans to sell off certain assets.
Analysts speculated that Kohlberg bowed out of the contest because the aggressive New York buyout firm did not want to proceed in a hostile manner and launch a tender offer.
Seldom an Aggressor
“It would hurt their image of being a ‘white knight’ and a defender of management,” said Kimberly Walin, an analyst at Prudential-Bache Securities Inc.
Kohlberg rarely has engaged in an outright hostile takeover, in part because the success of its deals typically depends on having existing management remain with the target company.
But analysts also were not convinced that Kohlberg was entirely out of the picture.
“It’s possible that if something negative develops, that KKR might be able to come back with a lower offer,” said Linda Morris, a retail analyst at Provident National Bank in Philadelphia.
She suggested Kohlberg might be waiting in the wings to see if any new lawsuits surfaced that charge the Kroger board with breaching its fiduciary duties for failing to negotiate the best price for shareholders.
“Certainly, there’s going to be some controversy over the decision not to discuss this higher offer with KKR,” said, First Manhattan analyst John Kosecoff who expects a spate of shareholder suits to ensue.
At least four shareholders’ suits already were filed against Kroger contending that the restructuring plan was not in shareholders’ best interests.
Kroger valued its restructuring at between $57 and $61 a share, but Kohlberg challenged those figures, noting that the financial community had put a price tag of between $53 to $56 a share on the plan.
Under terms of the restructuring, Kroger would distribute a special dividend of $40 in cash plus notes and stock for each Kroger share.
Disagreements over the value of the plan centered on “stub” shares of stock, which Kroger officials estimated would trade at between $9 and $13 each. Wall Street investors, however, estimated the stub’s value as low as $5 a share.
Analysts discounted the effect Kohlberg’s withdrawal might have on the Haft bid. The Hafts, who control Dart Group Corp. and have a reputation as corporate raiders, “still have their fingers in the pie . . . but I’d be surprised if they were serious,” Morris said.
Furthermore, after rejecting the Kohlberg bid as inadequate, it would be difficult for Kroger to look favorably upon the Haft proposal, which was considered inferior by the investment community.
The Hafts offered last week to help Kroger fight the Kohlberg bid by proposing to provide additional equity for Kroger’s restructuring.
In a brief statement Tuesday, Dart Group President Robert Haft said he was still interested in working with Kroger “to strengthen the company and enhance their restructuring by providing additional equity.”
He declined to comment on whether the Haft bid has been withdrawn. But representatives of the Haft family “had contact” with Kroger management last week about remaining involved with the company, a source said.
The Hafts, who control a retail empire, have forged a reputation by launching a number of takeover attempts.