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Kroger Acquisition: Would Supervalu Or Whole Foods Be Better For Its Stock?

There's been a great deal of consolidation talk surrounding the grocery retail industry over the last few weeks according to industry reporter Supermarket News. These talks first sparked a couple years back, but seem to have found new life recently, and Kroger (NYSE:KR) is one of the most speculated names involved. With that said, Kroger is no stranger to big acquisitions, and because of this fact, many have suggested it could acquire Whole Foods Market (NASDAQ:WFM) to drastically increase its footprint in the healthy, fresh, organic foods industry. However, that acquisition is very unlikely, and would be bad for the stock; the only big grocery retailer acquisition that would make sense and add value to Kroger's stock is surprisingly Supervalu (NYSE:SVU). Here's why.

As I explained in an article back in March, Kroger is much cheaper, and is actually growing faster than Whole Foods. If Kroger were to acquire Whole Foods, it would not gain much growth, but would have to significantly dilute its stock to absorb the $15.5 billion company. In essence, Kroger would have to pay the equivalent to half of its market capitalization for Whole Foods, but would only increase its annual revenue by 15% at most. Read more