Kroger will face off with regulators beginning Monday in U.S. District Court in Portland, Oregon for a critical legal hearing in its proposed $25 billion takeover of Albertsons.
Regulators with the Federal Trade Commission have sued to stop the merger and have asked a federal judge to grant a preliminary injunction to block the deal. The court order would halt the deal while regulators pursue their case to kill the deal.
Antitrust experts say the coming hearing amounts to a “mini-trial” on the merger battle that could have an outsize impact on the deal: most mergers that lose a preliminary injunction fight, face months of costly delays and are therefore abandoned.
After nearly two years of fierce debate, review and litigation, the Kroger-Albertsons proposed merger is headed for a decisive stage. Here’s a refresher:
What does this deal look like?
First unveiled in October 2022, Cincinnati-based Kroger plans to buy all outstanding shares of Boise, Idaho-based Albertsons, adding most of its employees and stores to its supermarket operation.
To reassure concerns about maintaining competition, Kroger has agreed to sell off 579 stores to a C&S Wholesale Grocers, a New Hampshire-based competitor that is mostly a supplier but also operates about two dozen retail supermarkets, including Piggly Wiggly.
Upon completion, Kroger would operate more than 4,400 supermarkets (up from 2,700) generating about $208 billion in annual sales (compared to $150 billion before).
What are the concerns about this transaction?
After more than a year of investigation, the FTC argued combining two large competitors in the market will reduce competition and lead to higher prices. Regulators have raised doubts that C&S, which has a small retail operation, is up to the task of assuming control of the divested store and competing for the long term.
The agency has noted a similar divestiture of hundreds of stores amid the Albertsons-Safeway merger in 2015 failed when the buyer filed bankruptcy and many stores either closed or were bought back by Albertsons. The FTC is also concerned about the impact to unionized workers losing bargaining power by combining two of their major employers.
How does Kroger respond?
Kroger pledged the deal will allow it to lower prices, that store workers won’t lose jobs and that C&S will be a strong competitor. The company says the deal allows it to compete more effectively in a changing grocery industry that has been flooded by non-traditional competitors.
The largest grocer is the world is supercenter operator Walmart, while others like online giant Amazon and wholesale warehouse operator Costco have emerged as big players in supplying food.
Kroger says the extra scale and increased buying power will allow it to operate more efficiently and pass savings onto customers and invest in its own growth, which will create jobs.
What’s next in the dispute?
When the FTC sued to stop the merger, it actually filed two lawsuits. The federal case against the merger itself was filed in-house and will be heard by an FTC-employed administrative judge in Washington, D.C. The second is the suit in Portland, Oregon seeking the preliminary injunction.
In theory, the FTC wants to win the injunction to pursue its case in Washington. But in practice, experts say, winning (or losing) the injunction could be a critical step in the dispute.
Why is this hearing important?
A loss could make either side give up the legal fight, rather than pursue what could likely become months of additional court battles.
“It’s possible they could abandon the whole damn thing because they don’t want to spend a year in Washington, D.C., litigating with the agency that’s already ruled against them,” Henry Hauser, an antitrust lawyer teaching at the University of Colorado in Boulder, said.
Are there are other court cases?
Even if Kroger prevails in federal court, the deal also faces two state lawsuits in Colorado and Washington state seeking to prevent the merger. Experts say losing one or both state cases could also jeopardize the transaction. Kroger’s deal doesn’t have a method for excluding stores in a state and it’s unclear if such a deal would be desirable to the retailer.
“They have to run the table – they have to win all three,” Douglas Ross, an antitrust law professor at the University of Washington, said.
A new legal maneuver: Kroger challenges FTC constitutionality
In a new legal twist, Kroger sued to stop the FTC’s administrative trial, claiming it violates the constitution.
The challenge is based on two theories: the first argues the administrative preceding violates the separation of powers, while the second argues the non-jury trial violates Kroger’s “private rights.”
Ross said the lawsuit appears to be an attempt by Kroger to force or prompt the FTC to pursue the rest of its antitrust case in federal court instead of through its in-house administrative system. The reason: Kroger may have a better shot at winning in federal court than at the FTC.
Price gouging? Politics catches up to inflation
A mega-merger that could affect food prices is a hot topic in an election year as Republicans blame Democrats for the post COVID-19 spike in inflation. Democrats have accused big business, including grocers, of price gouging.
The cost of food from supermarkets has outpaced overall inflation: up 24.7% since March of 2020 versus 21.5%, according to the U.S. Bureau of Labor Statistics. But food inflation has leveled off since last year: year-over-year food increases in 2024 have been 1 to 1.2% versus 2.9% to 3.5% for overall inflation.
On Aug. 16, Kroger announced it would cut food prices by $1 billion if its merger were approved, twice its previous forecast.
Stay tuned …
To keep closer tabs on next week’s developments, The Enquirer is sending business reporter Alex Coolidge to Portland.
For the latest on Kroger, P&G, Fifth Third Bank and Cincinnati business, follow @alexcoolidge on X (formerly Twitter).
This article originally appeared on Cincinnati Enquirer: What’s next in the Kroger merger with Albertsons
Source Agencies
