The Realistic, But Unlikely, Fresh Market (TFM) Takeout Scenario - RBC

RBC Capital analyst, William Kirk, thinks it would take a combination of BOTH private equity and Kroger (NYSE: KG) to make a The Fresh Market (NASDAQ: TFM) transaction profitable. No change to Underperform rating or $20 PT but this unlikely takeout scenario could warrant a $24 share price.

Why Private Equity or Kroger Doesn't Make Sense: For Private Equity: 1) The Fresh Market represents a capital raise burden; 2) The Fresh Market store count and revenue are already of size usually seen when Private Equity exits food retail positions; and 3) Publix strength and increased capital spend and Bi-Lo Winn Dixie price investments would be hard to navigate for a non-strategic player. For Kroger: 1) The Fresh Market doesn't fit its performing asset acquisition criteria; and 2) real estate is not very incremental to existing footprint.

Private Equity could partner with Kroger and spin out the Florida locations to the grocer while taking the rest of the company private. For Private Equity, this would: 1) reduce capital raise burden; 2) reduce exposure to Publix strength/spend (69% of stores in Florida); and 3) mitigate pressures of Bi-Lo Winn Dixie price investments. Meanwhile, for Kroger this would: 1) make the deal 100% real estate incremental; and 2) eliminate the underperforming aspects of The Fresh Market (TFM Florida locations have Yelp score of 3.79 vs. non-Florida of 3.70).

For an analyst ratings summary and ratings history on The Fresh Market click here. For more ratings news on The Fresh Market click here.

Shares of The Fresh Market closed at $23.39 yesterday.

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