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U.S. grocer Kroger Co KR-N said on Friday it will buy smaller rival Albertsons Companies Inc ACI-N in a $24.6-billion deal, creating a supermarket behemoth to take on leader Walmart Inc.

Kroger will pay $34.10 for each Albertsons share, representing a premium of about 33 per cent to the stock’s closing price on Wednesday, a day before media reports emerged of a deal between the two.

The mega merger between the No. 1 and 2 stand-alone grocers in the United States will bring together over 2,200 Albertsons locations and more than 2,700 Kroger stores, including banners such as Ralphs and Fred Meyer.

But it stands to draw plenty of regulatory scrutiny, with some analysts saying the deal could stifle competition and lead to higher prices for American shoppers.

In a move that could help ease those concerns, the companies said they expect to divest some stores and Albertsons is ready to spinoff a stand-alone unit to its shareholders immediately before the Kroger deal closes. The new public company is estimated to comprise between 100 and 375 stores.

“Albertsons Cos brings a complementary footprint and operates in several parts of the country with very few or no Kroger stores,” Kroger’s Chief Executive Officer Rodney McMullen said.

“This merger … accelerates our position as a more compelling alternative to larger and non-union competitors.”

Market leader Walmart has been doubling down on its own grocery business and has traditionally used its scale to demand the lowest possible prices from food and beverage suppliers, leaving rivals at a disadvantage in price negotiations.

The Kroger-Albertsons merger would give them an edge over negotiations on product prices with suppliers including consumer goods companies, at a time when prices of groceries and essentials are soaring in the country.

Kroger said it expects to reinvest about half a billion dollars of cost savings from deal synergies to reduce prices for customers. An incremental $1.3-billion will also be invested into Albertsons.

Ohio-based Kroger plans to fund the deal using a combination of cash on hand and proceeds from $17.4-billion in debt financing in place from Citi and Wells Fargo.

After the deal close, which is expected in early 2024, Kroger CEO McMullen will continue to serve as the head of the combined company.

Shares of both Albertsons and Kroger were down about 3 per cent in premarket trading. Albertsons stock closed up 11 per cent on Thursday, while Kroger was up about 1 per cent.

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