C&S Wholesale Grocers and SpartanNash Merge to Create a Larger Food Distribution Network in the Grocery Industry: A Strategic Move to Boost Competitiveness and Scale

C&S Wholesale Grocers and SpartanNash have announced a $1.7 billion merger that will create a larger food distribution network and give both companies greater scale in the grocery industry. The deal, which was announced yesterday, comes after C&S's previous attempt to acquire Kroger and Albertsons fell through due to antitrust concerns.

This time around, C&S is firmly in the driver's seat, and the company appears to have taken pains to avoid attracting a level of regulatory scrutiny that could delay or imperil its effort to push the deal to conclusion. While C&S and SpartanNash are both grocery wholesalers and retailers, they mostly operate in different states, which minimizes the risk of overlapping operations that could have raised concerns with regulators.

The merger will create a bigger food distribution network that will be better able to compete with "various extremely large global grocers in the U.S. food-at-home space," according to the companies. Interestingly, both companies have recently been expanding their retail operations, with C&S even disclosing in May that it would close a Florida distribution center.

SpartanNash's sales have been tilting away from wholesale, with its retail operations gaining momentum during the third quarter of 2024. The company's wholesale segment accounted for just over 67% of its revenue during its latest quarter, down from more than 71% a year ago. In addition, the company's overall sales barely budged year over year, held back by a decline in its wholesale business.

Assuming the merger goes through, SpartanNash would cease to be a publicly traded company because C&S is privately held. Shareholders have enthusiastically signaled that they like the idea of cashing out at the price C&S has agreed to pay. SpartanNash shares soared more than 50% after the deal was announced on Monday morning to $26.57 - a level not seen since early 2023.

The merger agreement also allows the companies an additional three months to tie things together if the only obstacle to completing the merger that remains is for them to meet conditions relating to approvals under antitrust law. If the companies are unable to obtain regulatory approval for the merger, C&S will be obligated to pay SpartanNash a $55 million termination fee. In addition, should SpartanNash opt to accept an offer from another suitor, it will need to pay a breakup fee of $35.4 million.

This merger could be a significant step forward for both companies in terms of scale and competitiveness in the grocery industry. With the right regulatory approvals and careful management of the integration process, this deal has the potential to be a major win for both C&S and SpartanNash.