Kroger Makes $2.15B Deal to Sell C-store Business

CINCINNATI — A new player is entering the U.S. convenience channel.

The Kroger Co. and EG Group, a privately held convenience and gas retailer based in the United Kingdom, reached a definitive agreement for the sale of Kroger's convenience store business unit to EG Group for $2.15 billion. 

The transaction is subject to customary closing conditions and the companies expect to close the transaction during the first quarter of Kroger's fiscal year.

In October, Kroger announced it was exploring strategic alternatives for its c-store assets, including a potential sale, as CSNews Online previously reported.

"Our convenience store business has been a part of our company for many years. We want to thank our management team and associates for their enduring commitment to our customers, and for the contributions they have made to build our supermarket fuel business," said Mike Schlotman, Kroger's executive vice president and chief financial officer.

"As part of our regular review of assets, it has become clear that our strong convenience store business unit will better meet its full potential outside of our business," he added.

As part of the agreement, EG Group will establish its North American headquarters in Cincinnati and continue to operate stores under their established banner names. 

"One of the most important considerations in our decision-making process was continued operations to ensure minimal disruption to our associates. We are very pleased the EG Group plans to establish their North American headquarters in Cincinnati. EG Group is also a recognized international petrol forecourt convenience operator and they have a commercial model which clearly looks to enhance the consumer offer by working with leading retail brands customers know and trust," Schlotman said.

"This is good for our associates across the country and for our headquarter city of Cincinnati. Throughout the process we were impressed with the EG Group's professionalism, investment, commitment, and more importantly, their understanding of the U.S. convenience retail market. We now look forward to working with them closely to ensure a smooth transition for associates," he explained.

The deal marks EG Group's first step into the United States.

"This is an exciting time for EG Group, the entry into the U.S. market presents a fantastic opportunity to deliver a successful retail offer to consumers across the various states," said Mohsin Issa, EG Group founder and co-CEO.

"We have had much success across Europe and we firmly believe the Kroger assets present a fantastic foundation to overlay our retail experience and know-how in the U.S. We are committed to investing in the Kroger network, partnering with leading retail brands and working with the exceptional management team and associates transferring across to deliver a comprehensive retail offer," Issa added.

Kroger plans to use net proceeds from the sale to repurchase shares and to lower its net total debt to adjusted EBITDA ratio.

Kroger's convenience store business operates in 18 states. It includes 66 franchise operations. The stores employ 11,000 associates and operate under the following banner names: Turkey Hill, Loaf 'N Jug, Kwik Shop, Tom Thumb and Quik Stop. Kroger's convenience store business generated revenue of $4 billion, including selling 1.2 billion gallons of fuel, in 2016.

The retailer's supermarket fuel centers and Turkey Hill Dairy are not included in the sale.

Goldman Sachs & Co. LLC is acting as exclusive financial advisor to Kroger and Weil, Gotshal & Manges LLP is acting as legal advisor to Kroger.

Morgan Stanley, Bank of America Merrill Lynch and Barclays are acting as financial advisors to EG Group. Allen & Overy is acting as legal advisor to EG Group.