Friday, May 21, 1999

Kroger sees stock split

Shareholders updated on Fred Meyer merger

The Cincinnati Enquirer

        The Kroger Co. couldn't tell hundreds of shareholders Thursday when it will complete its merger with Fred Meyer Inc., but the nation's largest grocery chain did give them a reason to look forward to it: a stock split.

        Chief Executive Joseph Pichler said the 2-for-1 split will take effect on the first business day, 10 days after completion of the merger.

        “This decision expresses our continued confidence in the future of the Kroger Co.,” Mr. Pichler said at its annual meeting. “We remain committed to increasing earnings per share by 16 percent to 18 percent beginning in the year 2000 and will continue to do our best to build shareholder value at a rate above our industry.”

        Kroger's last stock split was in April 1997.

        The merger with Fred Meyer, announced in October, is expected “to close anytime,” Mr. Pichler said before the meeting.

        Investors in Kroger reacted to the stock-split news with sighs of relief and hushed cheers. Some shareholders had been concerned about the company's declining stock price. Kroger closed Thursday up $1.75 at $53.621/2, well off its 52-week high of $68.75.

        “It's up 27 percent from its 52-week low, and it's down 25 percent from its 52-week high,” Cincinnati shareholder Marvin Schram said of Kroger stock. “Great performance to get to where it is, but how come it dropped 25 percent?”

        Mr. Pichler discussed the declining stock price and said while it is down, it is performing better than its industry peers by 7 to 8 percentage points. He said large, longstanding mergers in the grocery store industry — including Kroger's — have created some uncertainty among investors.

        Analyst Charles Cerankosky, who covers Kroger for McDonald & Co. Securities, agreed. “Everything seems ready to go and then there's a delay ... people grow bored and disenchanted.”

        Mr. Cerankosky said he expects Kroger stock to rebound to the $70-a-share level, pre-split.

        Mr. Pichler said the merger with Portland, Ore.-based Fred Meyer will give Kroger a major presence in 10 of the 15 fastest-growing markets. Ten cents of every dollar spent in American food stores will land in one of Kroger's registers, and Kroger will have the No. 1 or No. 2 market position in 33 of the country's 100 largest markets.

        “The Fred Meyer-Kroger combination will create the nation's largest supermarket company,” Mr. Pichler said. “A formidable competitor with the broadest geographic coverage and the widest spectrum of food retailing formats of any player in the industry.”

        Adding to Mr. Pichler's comments, Bob Miller, chief executive officer of Fred Meyer, said the combined companies “will generate substantial economies” from the ability to order in higher volumes.

        “The integration planning continues to move rapidly while we wait for the final approval from the FTC (Federal Trade Commission), which we expect soon,” said Mr. Miller, who will become chief operating officer and vice chairman of Kroger after the merger.

        In terms of strategic development, Mr. Pichler said Kroger will continue improving its technology applications, logistics network, brand sales and marketing, and it plans to continue consolidating its support activities.

        In 1998, Kroger consolidated slow-turn grocery, health and beauty care items and private label products into four warehouses. As a result, it closed 14 satellite warehouses. Most of its divisional distribution functions have been sold to third-party logistics firms, Mr. Pichler said.

        “Our goal is to reduce costs and benchmark the remaining company-operated distribution centers,” he said. “While still early in the process, we are encouraged by the results.”

        Also in the meeting, shareholders voted to approve a shareholder proposal for an annual election of directors — though directors still must consider the measure for approval. Kroger elects its directors in three classes, each of which is up for election every three years. More than 100 million shares voted in approval of the measure.


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