In an era of inflation and consolidation, the proposed merger of supermarket giants Kroger and Albertsons has caught the FTC's eye—and the eyes of nine states' attorneys general. A lawsuit was filed by the agency to stop the $24.6 billion deal, and calls into question the two companies' divestment plans to a third entity.
“Kroger’s acquisition of Albertsons would lead to additional grocery price hikes for everyday goods, further exacerbating the financial strain consumers across the country face today,” said Henry Liu, director of the FTC’s Bureau of Competition, in a statement. “Essential grocery store workers would also suffer under this deal, facing the threat of their wages dwindling, benefits diminishing, and their working conditions deteriorating.”
As GroceryDive notes, Kroger and Albertsons plan a "$1.9 billion definitive agreement with C&S Wholesale Grocers to sell 413 stores and eight distribution centers across 17 states and Washington, D.C" in order to ensure their merger is approved. Yet, the FTC says the planned divestiture is inadequate. “Even if C&S were to survive as an operator, Kroger and Albertsons’s proposed divestitures still do not solve the multitude of competitive issues created by the proposed acquisition,” the agency stated. Adding, "C&S would face significant obstacles stitching together the various parts and pieces from Kroger and Albertsons into a functioning business—let alone a successful competitor against a combined Kroger and Albertsons."
The plan recalls Albertsons' merger with Safeway in 2015. As part of the deal, Albertsons would sell off 168 stores to regional chain Haggen. However, Haggen claimed Albertsons failed to agree to the terms set and the regional chained filed for bankruptcy. Albertsons was then able to swoop in and rebuy 33 of its own stores for pennies on the dollar.
Deal Defense
The Kroger-Albertsons deal is not the only mega-merger currently in the works, nor is it the only one that has caught the anti-monopoly eye of the FTC. Credit card giants Capital One and Discovery announced their proposed merger earlier this month to the tune of $35.3 billion. And while the may very well be blocked by the federal government, a large termination fee has been baked into the talks should things fall apart in other ways. A $1.38 billion termination fee would be activated if the board of directors on either side backs out of the deal. As Legal Dive notes, the $1.38 billion fee is in line with similar back-out penalties, though likely 'at the upper end' of the scale."
THE VERDICT:
While the FTC claims that a Kroger-Albertsons merge would create pure monopolies in large swaths of California and elsewhere, the supermarket chains argue that their real competition is Amazon, Costco, and Walmart. That may be an uphill battle given the antitrust streak the Biden Administration has been on.
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