Federal judge deals a blow to Albertsons as she blocks its planned merger with Kroger
A federal judge has halted the planned merger between the Albertsons and Kroger supermarket chains.
U.S. District Judge Adrienne Nelson granted a preliminary injunction to block the $24.6 billion deal after a three-week hearing in Portland, where the Federal Trade Commission and attorneys general from several states argued that the merger would substantially lessen competition in the grocery market.
“Any harms defendants experience as a result of the injunction do not overcome the strong public interest in the enforcement of antitrust law, especially given the difficulty in disentangling a premature merger,” Nelson wrote in the 71-page document.
The case, filed by the FTC along with the states of Arizona, California, Illinois, Maryland, Nevada, New Mexico, Oregon and Wyoming, sought to prevent the merger under the Federal Trade Commission Act and the Clayton Act. They argued the merger would create a monopoly, reduce competition and harm consumers and workers, in violation of Section 7 of the Clayton Act, which prohibits mergers that may substantially lessen competition or create a monopoly.
FTC administrative proceedings to consider merger
Albertsons and Kroger have a combined 700,000-plus employees who work in nearly 5,000 stores, in Idaho and elsewhere, where millions of households buy their groceries.
The companies compete head-to-head in hundreds of markets across the country, including the Boise area, where Albertsons is based and where Kroger operates Fred Meyer stores. Both have expanded over the years through numerous acquisitions. Kroger, based in Cincinnati, is the nation’s largest traditional grocery company. Albertsons is the second-largest.
“The court finds that both qualitative and quantitative evidence shows that defendants engage in substantial head-to-head competition and the proposed merger would remove that competition,” Tuesday’s order said. “As a result, the proposed merger is likely to lead to unilateral competitive effects and is presumptively unlawful.”
Nelson said that although Albertsons and Kroger may now decide to abandon the merger, the order “in no way forces them to do so.” She said it allows the companies pursue the merger at a later date if it’s deemed lawful in the FTC’s own administrative proceedings.
The companies have said the deal would give them more leverage with suppliers, which would lower prices and help them compete more effectively with other retail giants like Walmart, Amazon and Costco. Kroger has promised that it “will not close any stores, distribution centers or manufacturing facilities or lay off any front-line associates as a result of the merger.”
Albertsons ‘disappointed’ by judge’s decision
The latest ruling is particularly bad for Albertsons, which has fewer stores and whose prices tend to be higher than Kroger’s.
In his testimony before Nelson, Albertsons CEO Vivek Sankaran said layoffs and store closures could result if Kroger’s takeover is blocked. Without Kroger, Albertsons may need to find another buyer within two to three years, Sankaran said, according to The Wall Street Journal.
In a statement Tuesday, a spokesperson for Albertsons said the grocer is “disappointed” by the court’s decision and is “evaluating our options.”
“We believe we clearly outlined during the proceedings how the proposed merger would expand competition, lower prices, increase associate wages, protect union jobs and enhance customers’ shopping experience,” the statement said.
What the stock market says
Kroger agreed to buy Albertsons more than two years ago for $34.10 per share. But Albertsons’ stock price has fallen significantly below the price its shareholders would receive if the deal goes through. It opened at $18.99 a share Tuesday and closed at $18.51.
“The market is telling you, ‘I don’t really want to own it; I don’t see this as a growth opportunity,’” Dave Petso, of Petso Financial Consultants in Boise, told the Idaho Statesman in September. “It’s also telling you that the company is in serious trouble.”
While Albertsons’ stock fell after Tuesday’s news, Kroger’s rose. Its stock opened at $58.11 a share and closed at $60.73.
A spokesperson for Kroger said in a statement that it, too, is disappointed by Nelson’s ruling and is “currently reviewing its options.” But, unlike Albertsons, the company will likely be fine. President and CEO Rodney McMullen told investors on a call Thursday that Kroger will “continue to go on” if the merger falls through, Grocery Dive reported.
“We’ve always made sure that we don’t need to do mergers to make our business successful,” McMullen said.
Meanwhile, two lawsuits over the same issues have worked their way through courtrooms in two other states, Washington and Colorado. About an hour after Nelson issued her order, a judge in Seattle also ruled against the merger.
Washington judge says merger would create ‘colossus’
King County Superior Court Judge Marshall Ferguson ruled that the merger violates Washington state antitrust law.
Ferguson indicated during the hearing that Kroger’s plan to sell hundreds of Kroger- and Albertsons-owned stores, including 13 Albertsons stores in Idaho, to C&S Wholesale Grocers, a little-known grocery-supply firm, was not enough to ease antitrust concerns.
“In my view, the evidence convincingly shows that the current competition between Kroger and Albertsons stores is fierce in the state of Washington,” Ferguson said. “By contrast, the divestiture buyer, C&S Wholesale, with its limited retail experience, will not be able to replicate the ferocity of that competition or compete in Washington against the colossus of a merged Kroger and Albertsons.”
Ferguson awarded the state attorneys costs and fees.
Colorado is also trying to stop the merger in its own state trial, which awaits a ruling.
The federal case now heads to the FTC for in-house proceedings, which Kroger, in a separate case, has argued are unconstitutional.
This story was originally published December 10, 2024 at 4:12 PM.
