The deal is worth $800 million.
The $3.60 per share cash offer represents a 65 percent premium to Roundy’s Tuesday close of $2.18.
The deal has an equity value of $177.8 million, based on Roundy’s outstanding shares as of Aug. 3.
Milwaukee-based Roundy’s operates supermarkets under the Pick ‘n Save, Copps and Metro Market and Mariano’s banners, primarily in the upper Midwest.
The deal will give Kroger 151 retail grocery stores and 101 pharmacies, for a total of 2,774 stores in 35 states.
The grocer will also gain presence in new markets such as Milwaukee, Madison and Northern Wisconsin and expand in the Chicago area, where it operates Ralphs and Food 4 Less stores.
Telsey Advisory Group analyst Joseph Feldman said that at 6.8-7 times EBITDA it did not appear Kroger was overpaying.
Kroger is facing increasing competition not only from traditional grocers such as Supervalu Inc and Albertsons but is also losing sales to mass market chains such as Wal-Mart Stores Inc and Target Corp, which are expanding their grocery and fresh foods businesses.
The company bought grocer Harris Teeter in 2013 to expand in the mid-Atlantic region, and last year it acquired health products retailer Vitacost.com Inc to expand in the fast-growing health and wellness niche.
Roundy’s, which has not turned a profit in the past three quarters, generates about 65 percent of its sales in Wisconsin.
The company, which reported third-quarter results on Wednesday, blamed store openings by competitors for a drop in same-store sales and weaker-than-expected revenue and profit.
Kroger said it would finance the transaction with debt, and refinance Roundy’s existing debt of $646 million.
The grocer said it expects the deal to add slightly to earnings in the first year after closing, and sees costs savings of about $40 million over time.
BofA Merrill Lynch and Sagent Advisors are financial advisers to Kroger, while J.P. Morgan Securities is advising Roundy’s. Weil, Gotshal & Manges is legal adviser to Kroger, while Kirkland & Ellis is advising Roundy’s.