Private Equity And Kroger Could Partner In Fresh Market Takeout

• The share price of The Fresh Market Inc TFM has declined 37.02 percent over the past one year, to a low of $18.58 on February 10.
• RBC Capital’s William Kirk has maintained an Underperform rating on the company, with a price target of $20.
• Although the company is unlikely to be attractive for either b>The Kroger Co KR, Kirk believes that a partnership between Private Equity and Kroger could make sense.

Analyst William Kirk believes that if Private Equity acquires The Fresh Market and then spins the Florida locations out to Kroger, it would eliminate some of the hurdles that both acquirers would face individually.

For Private Equity on its own, “The Fresh Market represents a capital raise burden,” while the company’s store count and revenue are already at a level that is generally seen when Private Equity chooses to exit its food retail positions.

On the other hand, “Publix strength and increased capital spend and Bi-Lo Winn Dixie price investments would be hard to navigate for a non-strategic player,” according to the RBC Capital report.

In addition, The Fresh Market does not represent a good fit for Kroger’s performing asset acquisition criteria, while real estate would not be too accretive to Kroger’s existing footprint.

However, a partnership would “1) reduce capital raise burden; 2) reduce exposure to Publix strength/spend; and 3) mitigate pressures of Bi-Lo Winn Dixie price investments.”

While for Kroger, a partnership would make the transaction 100 percent real estate accretive, while eliminating the underperforming segments of The Fresh Market.

“While we don't necessarily think this will happen, we believe multiple parties could solve some of the issues that any individual party would have with an outright deal for TFM,” Kirk added.