This is a library-researched case, using publicly available sources, including company reports and press releases, articles in the business press and databases such as Standard and Poor’s Net Advantage, among others.
At the time this case was written, Kroger, the largest U.S. traditional grocer, had made an offer for Albertsons, the second largest traditional grocer. The merger should have been completed by the time of the case but was not because of objections from the Federal Trade Commission, employees, states attorneys and consumer groups. While this case is a follow-up to a case about Kroger and Albertsons set in an earlier time, it can stand alone and be used by instructors who want to explore synergies that may result from a merger. Specifically, this case asks students to identify and quantify potential synergies resulting from a merger between Kroger and Albertsons. Students can quantify potential benefits by (1) determining which company is more efficient in which area and (2) forecasting free cash flows to estimate the enterprise value of the combined company. The valuation exercise can assume improvement or deterioration of the combined firm’s financial performance after assessing the financial metrics of the more or less efficient firm, according to the scenarios provided in the case.
The case is suitable for financial management courses that cover firm valuation, particularly if learning objective two is chosen as the focus. It can also be used in financial management courses that explore mergers and valuation topics in detail. The case can also be used for general management courses if the valuation component is considered less important. Furthermore, given that the case involves two of the largest U.S. agribusinesses, it may be adopted for use in agribusiness management courses.
