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Publix Eyes Harris Teeter

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Rumor has it that the grocery retailer Harris Teeter Supermarkets Inc. (HTSI) is currently being eyed by Publix Super Markets Inc. (:PUSH) for a possible acquisition. 

Harris Teeter, a $2 billion company employing 25,000 people confirmed on Feb 2013 that it was looking for a suitable bidder for all its assets. It also declared that it had appointed JP Morgan Chase Capital (JPM) as its financial advisor in this matter.  

After the intention to sellout was declared, two other retail giants, namely Kroger Company (KR) and international supermarket operator Koninklijke Ahold N.V. based in The Netherlands emerged as possible bidders.

Publix has long been the dominant supermarket in Florida, with 756 locations but is proceeding northward with 179 locations in Georgia, 53 in Alabama, 47 in South Carolina and 34 in Tennessee. Publix is opening its first North Carolina store next year and plans to expand. The takeover of Harris Teeter will help increase its presence further north into Virginia and North Carolina.

Currently, Harris Teeter operates a regional chain of supermarkets in eight states mainly in southeastern and mid-Atlantic U.S. and the District of Columbia.

In Jan 2013, Harris Teeter reported earnings per share of 46 cents per diluted share, for its first fiscal quarter of 2013, down 13.2 % from 53 cents per share reported a year ago. The grocery chain has been facing margin pressure for some time due to increased competition.

Given the sluggish growth in the last few years, the company had slowed down store openings and instead focused on renovating its existing stores.

However, slow recovery of the U.S. economy and apprehension about the fiscal cliff hasresulted in consistently weak discretionary spending by consumers.

Harris Teeter is of course not alone. Most of the regional groceries are seeing tough times in the U.S. and are either trimming down, or selling their assets to equity firms. The grocery chain Supervalu Inc. (SVU) has decided to sell five of its supermarkets, which in combination amount to 877 individual stores. The sale of these supermarkets to private equity firm Cerberus Capital Management LP for $3.3 billion is expected to improve its margins.

Currently, Harris Teeter carries a Zacks Rank #5 (Strong Sell).

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