Edina-based Nash Finch Co., a major grocery distributor that is on the Fortune 500, is being acquired by a Michigan-based rival.
The 128-year-old grocer is being acquired by Spartan Stores in a $1.3 billion stock-swap, a deal Nash Finch CEO Alec Covington said will produce a combined that is stronger and more efficient.
The buyer, Spartan Stores, is one of the nation's largest food distributors, serving about 400 stores in Michigan, Indiana and Ohio. It also owns about 100 grocery stores.
"This is just an excellent strategic fit between these two companies," Covington said. "This is a company that is going to have enormous financial capacity to do what it deems is necessary and in the best interests of shareholders."
The combined company will include 22 distribution centers that cover 37 states and 177 retail stores. Nash Finch's military business will continue to be based in Norfolk, Va. The deal is expected to close by the end of this year.
“Nash Finch has been able to find a white knight in Spartan. Hopefully, both companies will end up being a little stronger.”David Livingston, grocery industry consultant
Nash Finch is one of the latest casualties of a grocery war that pits traditional grocers against discounters like Walmart and Target.
The company, which got its start in 1885 as a small confectionery store in North Dakota, grew into one the nation's largest grocery wholesalers. But it has struggled of late.
Last year, Nash Finch posted a net loss of $93 million on flat sales of about $4.8 billion, as competitors ate into its business.
Layoffs appear likely, but the companies were mum on how many Minnesota jobs would be cut.
Covington said the elimination of overlapping and redundant operations will provide the combined company with $50 million in annual savings.
"You don't have to be the sharpest knife in the draw to know there's a good opportunity to be had in combining the two companies," he said.
The companies said the merged operation will maintain a corporate presence in both the Twin Cities and Grand Rapids, Mich. But it's clear from the deal's structure that Spartan officials will be in control. Spartan CEO Dennis Eidson will serve as president and CEO.
Covington, of Nash Finch, will serve as an adviser to help with the transition process. Often, the CEO's hometown workforce fares better in the consolidation after a merger.
Nash Finch distributes food to conventional supermarkets and other stores, as well as military commissaries in 36 states and the District of Columbia. It also serves stores in several foreign countries. The company has two distribution centers in Minnesota and about a dozen supermarkets that operate under the Family Fresh and Econofoods banners — chains that have been struggling.
"Nash Finch has been continually losing market share in their retail stores," grocery industry consultant David Livingston said. "And their wholesale customers are experiencing a lot of competitive pressure."
Livingston said Nash Finch's merger with a somewhat similarly challenged — but stronger — food distributor makes sense. He said Spartan has been a better run company.
"Spartan in my opinion has been a better-run company," he said. "They've gone up against stronger competitors and fared a little bitter. In the long run, this is probably the best thing for Nash Finch to do — to hook up with another competitor. This will help Nash Finch stay in business for a while."
Livingston said Nash Finch's problems are similar to those of another big local grocery wholesaler -- Eden Prairie-based Supervalu. But Livingston said Nash Finch is in better shape.
"They're both in debt," he said. "They both have weak retail operations and face the same types of new competition. Supervalu is in much deeper trouble, though," he said. "Nash Finch has been able to find a white knight in Spartan. Hopefully, both companies will end up being a little stronger. They're trying to eliminate a lot of overhead and redundant operations. And they will."
Earlier this year, Supervalu sold five poor-performing grocery store chains in a deal valued at $3.3 billion. The transaction cut Supervalu's annual sales in half but relieved the company of much of its huge debt load. Supervalu continues to operate about 40 Cub Foods stores in Minnesota.
With the merger, the Nash name will likely disappear from the grocery business eventually, though in the short run it will survive as a subsidiary of Spartan Foods.
That's disappointing for Robert Nash, whose grandfather, Fred, founded the company.
"Well, the first thought is a little bit of sadness that the company is going away," said Nash, who retired from the company's board in 2003 after having served in executive positions. "But on the other hand, it's probably a good thing for our stockholders. And Spartan seems to be culturally similar to Nash Finch from what I've heard."
Stockholders liked what they saw, at least initially. Nash Finch's stock price rose 3 percent. Spartan's rose 4 percent.