The $1.3 billion combination of Edina-based Nash Finch Co. and Michigan's Spartan Stores will lower risks for both companies and their shareholders, Nash Finch CEO Alec Covington said Thursday.

Covington's comments came in a quarterly earnings conference call with stock analysts. Nash Finch Co.'s second-quarter net profits fell 7 percent over a year ago as the company's military business saw its earnings significantly crimped. But Nash Finch's sales rose 9 percent.

Nash and Spartan, both grocery distributors, announced the deal Monday. It will result in a company headed by Spartan's CEO Dennis Eidson, with some operations in the Twin Cities and Grand Rapids — though an official headquarters hasn't been named. With roots in the 19th century, Nash Finch is one of Minnesota's oldest large companies and has been based in the Minneapolis area since 1919.

The deal will reduce the two firms' costs by about $50 million going forward, cuts likely to stem partly from the disappearance of office jobs. While cost reductions will be "painful," Covington said the deal is a boon to shareholders. Synergies will reverberate, and the deal is structured as a merger, which means no tax hits to shareholders and no big debt pileup for the new company, he said. Covington expects the merger to create about $300 million in value to Nash Finch and Spartan shareholders combined.

"I don't think I could provide that level of value to shareholders with any other strategic move," he said.

For Nash Finch, the deal produces a "huge upside" by spreading debt across two companies, Covington said. "We are reducing risks. The debt ratio will drop."

For Spartan, the deal reduces risk by diversifying the company geographically into the Upper Midwest — it's currently focused on Michigan — and diversifying the type of business it's in, Covington said. Nash Finch is a big grocery distributor to U.S. military commissaries, as well as supermarkets, Spartan's mainstay.

Nash Finch's stock closed down 15 cents at $24.90 Thursday, down 53 cents from before the deal was announced.

Nash Finch posted second-quarter adjusted net earnings of $8.4 million, or 64 cents per share, compared to $9 million, or 69 cents per share, at the same time a year ago. Results were adjusted to exclude a one-time benefit of 4 cents per share in the latest quarter and a charge of $7.24 per share during last year's second quarter.

Nash Finch reported sales in the latest quarter of $1.2 billion, up from $1.1 billion a year ago and buoyed partly by the acquisition last year of 30 retail grocery stores in Nebraska.

While the firm's military sales of $537.5 million rose 2.2 percent over a year ago, its operating earnings fell 41.5 percent. The decline was due to lower inflation this year, reduced contract profit margins and several large casualty insurance claims related to transportation accidents.

Mike Hughlett • 612-673-7003