Shares of grocery store operator Roundy’s surged Wednesday after it agreed to be bought by a larger rival, Kroger, for about $800 million.

Kroger, one of the largest U.S. retailers, operates 2,623 supermarkets in 34 states under various brands, including Dillons, Food 4 Less, Harris Teeterand Ralphs, after it bought regional chains over the years in an effort to consolidate the industry. Kroger said it will run Roundy’s as a subsidiary whose stores are largely based in Wisconsin and the Chicago area. Kroger says it has no plans to close Roundy’s stores.

Kroger will buy all outstanding shares of Roundy’s for $3.60 per share in cash. The terms of the agreement were unanimously approved by the companies’ boards of directors. The deal is expected to close before the end of the year.

Shares of Roundy’s rose 64% Wednesday, or $1.39 to $3.57.

“Kroger’s scale and strong financial position will enable Roundy’s to reinvest in its home state of Wisconsin, while continuing to grow in Chicago,” said Kroger’s chairman and CEO Rodney McMullen in a statement.

Following the deal, Kroger will expand its Midwestern operations with Roundy’s 151 stores and 101 pharmacies in Milwaukee and Madison, Wisc. that are operated under the Pick ‘n Save, Copps and Metro Market brands. Roundy’s, which had about $4 billion in sales last year, also operates 34 Mariano’s stores in the Chicago area.

Analysts say the deal makes geographic sense for Kroger since it lacks presence in Wisconsin and Illinois. In a note to investors, Andrew Wolf of BB&T Capital Market noted that Mariano’s, which competes with Whole Foods Market by specializing in fresh foods, is “an exciting growth vehicle going forward.”

“We believe Kroger is likely to take this concept to other markets over time,” he wrote.

Kroger says it will finance the deal with debt, and refinance Roundy’s existing debt of $646 million.

The deal will save Kroger about $40 million as it reduces redundant operations and seeks other post-merger areas to be more efficient. But the company plans to reinvest those cost savings back in the business.

Source: USA Today