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Leading food distributor Nash Finch Company and leading grocery distributor Spartan Stores Inc. (SPTN - Snapshot Report) have agreed to join forces and form a combined entity. The $1.3 billion definitive merger agreement will close by the end of calendar 2013.

The merger will form a leading wholesale and food distributor boasting a total of 22 distribution centers covering 37 states and 177 retail stores. Moreover, the new company will command a strong portfolio of private brands including Spartan Stores’ Spartan, Family Fare and Valu Land brands and Nash Finch’s Our Family and Nash Brothers Trading Company brands. The deal will give the combined company a larger profile, with annual sales of about $7.5 billion.

The merger is expected to generate $50 million annual cost synergies and involve a one-time integration cost of $26 million within three years.

The all-stock merger also holds that Nash Finch shareholders will receive a fixed ratio of 1.20 shares of Spartan Stores for each Nash Finch share. Spartan Stores’ shareholders will own approximately 57.7% of the equity of the combined entity and Nash Finch shareholders will own approximately 42.3%. The combined company will pay an annual dividend of 48 cents to its shareholders.

Dennis Eidson, President and Chief Executive Officer (CEO) of Spartan Stores, will continue to serve in the same position at the combined company. Alec Covington, President and CEO of Nash Finch, will take up an advisory position in the combined entity to smoothen the transition.

The merger will enable the companies to complement each other because of their similar nature. Spartan Stores will help Nash Finch to expand in Michigan, Indiana and Ohio. In exchange, Spartan Stores will be benefited by Nash Finch’s leading position in grocery distribution to military commissaries and exchanges, its comprehensive wholesale grocery network throughout the U.S.

Other Stocks to Consider

Investors may consider other consumer staples stocks, such as Green Mountain Coffee Roasters Inc. (GMCR - Analyst Report) and Sanderson Farms Inc. (SAFM - Snapshot Report). Both companies carry a Zacks Rank #1 (Strong Buy).

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