On Friday, US grocer Kroger Co (NYSE:KR) said it would buy smaller rival Albertsons Companies Inc in a USD 24.6 billion deal, creating a supermarket giant to take on leader Walmart (NYSE:WMT) Inc.

Reportedly, Kroger will pay USD 34.10 for each Albertsons share, representing a premium of about 33 per cent to the stock’s closing price on Wednesday, a day before media reports emerged of a deal between the two.

The mega merger between the two grocers in the United States is likely to bring together over 2,200 Albertsons locations and about 2,700 Kroger stores, including banners such as Ralphs and Fred Meyer.

The firms said they expect to divest some stores, and Albertsons is ready to spin off a standalone unit to its shareholders immediately before the Kroger deal closes. The newly public company is estimated to comprise between 100 and 375 stores.

Walmart has been doubling down on its own grocery business. It has traditionally used its scale to demand the lowest possible prices from food and beverage suppliers, leaving competitors at a disadvantage in price negotiations.

The Kroger-Albertsons merger would give them an advantage over negotiations on product prices with suppliers at a time when prices of groceries and other essentials are rising in the country.

Kroger said it expects to reinvest about half a billion dollars of cost savings from deal synergies to reduce customer prices. An incremental USD 1.3 billion will also be invested into Albertsons. The company plans to fund the deal using a combination of cash on hand and proceeds from USD 17.4 billion in debt financing from Citi and Wells Fargo (NYSE:WFC).

Shares of Albertsons and Kroger were down about 3 per cent in premarket trading. Albertsons stock closed up 11 per cent on Thursday, while Kroger was up about 1 per cent.