Supermarket operator Albertsons is reportedly eyeing a merger with natural and organic grocery store Sprouts Farmers Market.
According to sources cited by The Denver Post, Albertsons has already held preliminary talks with Sprouts on the matter. While still in the early stages of discussion, the reported plan as of now would be to have Albertsons bring Sprout private, adding the organic grocer to its portfolio that currently includes Safeway.
Some are beginning to think that news of the trade may have leaked, according to Reuters, after stock prices at Sprouts surged by about 23 percent in the past week — at the same time a good deal of national grocery businesses traded flat or down.
A leak on the acquisition talks appears to be at least one viable explanation for the stock surge, especially given the tepid stock behavior even after the organic grocer announced positive Q4 results at the tail end of February.
Sprouts reported an overall rise in both net and comparable-store sales even as food deflation continues to bring down produce prices and increased promotional competition across the industry.
The organic grocer hit $986 million in net sales for Q4, up 6 percent over the same period in 2015. The supermarket chain reported comparable sales up 0.7 percent in 2016, driven by a 0.4 percent growth in store traffic. For the full year, Sprouts’ net sales were up 13 percent to $4 billion, driven by a 2.7 percent increase in comp sales. Still, net income for the grocer was down for the quarter and the year.
So while Sprouts shares hit an 18-month low on March 7, value rallied 11 percent on Thursday. Reuters noted that roughly half the gains came in the last hour of trading, with nearly 9 million shares changing hands — the busiest hour of trading for the year.
In the deal with Albertsons, Sprouts could potentially fetch $26 per share, according to a note written by Jefferies Group analyst Christopher Mandeville cited by the Post. This potential per share sale value is about 18 percent above the organic grocer’s Monday closing price of $21.82.