Grocery business Albertsons Cos held preliminary talks to merge with Sprouts Farmers Market, Bloomberg reported on Sunday, citing people familiar with the situation.
Bloomberg said the early stage discussions took place in recent weeks and involved a plan to take Sprouts private. Doing so would add the natural and organic foods-focused business to the Albertsons suite of supermarket brands, which includes Safeway, Vons and Shaw’s.
Albertsons is backed by private equity firm Cerberus Capital Management. Representatives for Albertsons and Sprouts (SFM) did not immediately respond to requests for comment, while a spokeswoman for Cerberus declined to comment.
Shares of Sprouts spiked to a four-month high on Thursday and Friday amid a surge in stock options trading.
Supermarket Consolidation
An acquisition of Sprouts would underscore the consolidation sweeping the U.S. grocery industry, as regional chains struggle to compete against online retailers such as Amazon (AMZN), big box stores such as Wal-Mart Stores (WMT), and discount chains such as ALDI.
Albertsons is one of the two most active industry acquirers along with The Kroger Co. (KR). A planned initial public offering for Albertsons’ has been delayed since October 2015. At the same time, Krogers stock is up more than 140% over the last five years despite falling 23% over the previous 12 months.
Sprouts is among the niche retailers such as Fresh Market and Whole Foods Market (WFM) facing pressure from Albertsons and Kroger, who now sell some of the same specialty and organic products at lower prices.
Fresh Market was acquired by another private equity firm, Apollo Global Management LLC, for about $1.36 billion in cash in 2016.
