Why Nash-Finch and Spartan Stores Popped

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of Nash-Finch (UNKNOWN: NAFC.DL  ) and Spartan Stores (NASDAQ: SPTN  ) jumped as much as 16% and 15%, respectively, after Spartan said it would buy Nash-Finch, primarily for its military stores.

So what: Spartan will pay approximately $312 million in the all-stock transaction, as Nash-Finch shareholders will get 1.2 Spartan shares for every Nash-Finch share they own. The deal will give it a food distribution business as well as a stronghold in military retail, covering commissaries in 37 states and exchanges in foreign countries. Notably, the deal didn't give a premium for Nash shares, but it will become more valuable if Spartan shares continue to rise. The deal is expected to close by the end of the year, and management said it should enable $50 million in cost savings by its third year.

Now what: With the steady stream of consolidation in the grocery industry, it's easy to see why the market views the deal as a win-win. It will strengthen Spartan's presence in the Upper Midwest as well as giving it access to the military market. Shares cooled off after the initial pop to finish up between 3% and 4%, which seems more reasonable, as the earlier 16% spike was probably exaggerated for an acquisition without a premium. Look for these two stocks to travel in tandem from now until closing, as the value of Nash shares is now tied to Spartan.  


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