Axfood (AXFO) M&A Announcement summary

Deal rationale and strategic fit

• Acquisition of the remaining 90.1% of City Gross gives full ownership, strengthening presence in the Swedish hypermarket segment where there was previously only a minority stake.

• The deal provides access to a segment representing 27% of the Swedish food retail market, with City Gross holding a 3% market share and 42 stores mainly in southern Sweden.

• City Gross' competitiveness will be enhanced through concept development, operational efficiencies, and leveraging expertise in logistics, assortment, and IT.

• The move is seen as an opportunity to challenge larger hypermarket players and expand market reach.

• Full control enables implementation of proven operational strategies and brand development.

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 SEK 25 million.

• The transaction will be a single cash outlay 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 expected to be earnings accretive by 2026 at the latest, supporting a long-term margin target of at least 4.5%.

Synergies and expected cost savings

• Integration with existing purchasing and logistics operations is expected to drive efficiencies.

• Centralized chain management and operational improvements, leveraging experience from other chains, are expected to improve profitability.

• Private label transition to Axfood brands is complete, with further potential to increase private label share.

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

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