Axfood (AXFO) M&A Announcement summary

Deal rationale and strategic fit

• Acquisition of the remaining 90.1% of City Gross gives full ownership, enabling entry and expansion in the hypermarket segment and strengthening market presence.

• City Gross operates 42 stores, mainly in southern Sweden, with a 3% market share and a strong brand but recent underperformance.

• The deal aligns with the strategy to enhance competitiveness, leverage expertise in operational efficiency, and develop the City Gross concept.

• Full control allows for deeper integration of systems, assortment, and private labels, enhancing the customer offer.

• The acquisition positions the buyer to challenge market leaders and expand reach in a segment where it previously had only a minority stake.

Financial terms and conditions

• Consideration is SEK 2.0 billion on a cash and debt-free basis, financed through existing cash and credit facilities.

• Transaction costs are estimated at approximately SEK 25 million.

• The transaction will be a single cash outflow at closing.

• City Gross' net sales for the last twelve months to April 2024 were SEK 9.1 billion, with an adjusted operating profit of SEK -132 million.

• Initial dilutive effect of 0.3 percentage points on group operating margin, but long-term target of at least 4.5% margin is reiterated.

Synergies and expected cost savings

• Integration of purchasing, logistics, and IT systems already underway, with further efficiencies expected from centralized chain management.

• Private label transition completed, with higher penetration now but still room for growth.

• Improvement initiatives in customer offering, chain management, and operational efficiency are expected to help City Gross reach profitability by 2026.

• The deal is expected to gradually strengthen City Gross' profitability and contribute to the long-term operating margin target.