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Business transactions include the sale of subsidiary companies

Most prominent industries in Texas, including the supermarket industry, must at times adapt to changing technologies and market trends to stay relevant and keep up with a changing landscape. Recently, one supermarket giant, Kroger, announced that it is considering selling off its convenience store businesses. That part of the company is worth $1.4 billion, with stores in 18 states. Business transactions like this one may allow a company to focus on its core operations.

The announcement stimulated a rally of Kroger stock, sending it as much as 7 percent higher. Kroger is a struggling player in an industry where Amazon recently purchased Whole Foods for $13.7 billion. Grocery businesses in the United States have also been impacted by the entrance into the field of low-price foreign competitors like Aldi and Lidl.

Kroger stated that it appeared that the convenience store division was likely worth more outside of the parent company.  Selling off a segment of a company can bring a sudden rise in the parent’s stock value due to various investor perceptions. One of those perceptions would be that of bringing an infusion of new cash capital into the business.

In some cases, the sale of a sluggish division of a company is welcomed news to stock holders and seen as the company’s commitment to eliminate dead weight and consolidate its operations. In this case, Kroger said it opted to put its convenience-store business on the block after a review found that it might have more value outside of Kroger. There are strong buyers that are positioned to pay a good price for Kroger’s convenience store assets, including 7-Eleven and Alimentation Couche-Tard.

The move shows Kroger’s willingness to try and adapt to the quick changing retail landscape. Kroger stock had taken a deep dive when Amazon first announced its purchase of Whole Foods. Major business transactions in an industry can impact the stock value of businesses similarly situated. The company may now be better positioned to compete with the low-margin, supply chain practices adopted by Amazon and others. Investors will watch these trends carefully in coming months, both nationwide and in Texas.

Source: Chicago Tribune, “Kroger considers selling its convenience stores, giving investors reason for optimism“, Craig Giammona, Oct. 11, 2017