Kroger (KR)/ Vitacost (VITC) Deal Called 'Smart' at Deutsche Bank

Deutsche Bank reiterated a Buy rating on Kroger (NYSE: KR) with a price target of $55. Earlier Kroger and Vitacost.com, Inc. (Nasdaq: VITC) announced a definitive merger agreement under which Kroger will purchase all outstanding shares of Vitacost.com for $8.00 per share in cash, or approximately $280 million. In the view of analyst Karen Short the acquisition was "smart."

"The VITC acquisition accelerates KR’s e-commerce initiatives by giving KR access to VITC’s infrastructure, including two DC’s (Las Vegas and Lexington, NC), and developed fulfillment capabilities (VITC offers more than 45,000 shelfstable products and has ~2.3M active customers). The acquisition will enable KR to sell products in all 50 states – including 16 states that KR does not currently reach. In addition, VITC provides KR with an excellent vehicle to greatly expand sales of KR’s successful private label natural/organic Simple Truth brand. On the flipside, KR will leverage its relationship with dunnhumby to accelerate sales with the combined KR and VITC customer base. It is unclear what this acquisition may mean for GNC’s relationship with dunnhumby," said Short.

"We view the VITC acquisition as a smart, proactive, low-risk move by KR to accelerate the development of its e-commerce platform, which is critical as we expect AmazonFresh to carve out a greater presence in the on-line grocery business over the next few years, with a high likelihood of industry disruption. The VITC acquisition should, in our view, give KR a competitive edge as the grocery business moves increasingly on-line," added the analyst.

For an analyst ratings summary and ratings history on Kroger click here. For more ratings news on Kroger click here.

Shares of Kroger closed at $49.53 yesterday.

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