Is the Kroger-Albertsons merger really over? The possibilities of the deal, and what it means for consumers, are explained
A week-long court battle is underway in Oregon right now that could determine the future of your grocery shopping experience—one side arguing that the largest supermarket merger proposed in US history will raise prices, while the other side asserts that it will benefit consumers.
Next month marks two years since Kroger announced it would buy Albertsons for a combined $24.6 billion. But that deal has been in limbo since February, when the Federal Trade Commission sued to block the merger on the grounds that it was anticompetitive. Kroger and Albertsons are two of the largest US grocery store chains, respectively.
Now the fate of this deal is in the hands of a federal court in Portland, and it will likely be decided by one woman: US District Court Judge Adrienne Nelson. He may decide whether to grant a preliminary injunction or injunction immediately after the trial.
During the trial last week, the CEO of Kroger and Albertsons testified that the merger would lead to lower prices for consumers. But the FTC’s position is that the deal would “eliminate substantial competition” between competitors—resulting in higher prices for consumers.
Most consumers likely won’t see any noticeable change when shopping for groceries if the deal goes through, though those living in areas with fewer grocery options could be materially impacted, Arun Sundaram, senior equity research analyst at CFRA Research, says. Fast company. He adds that Kroger and Albertsons want to merge to better compete with the growing number of retailers that also sell groceries, including Walmart, Amazon, Costco, Target, and various dollar stores.
However, the perception of the proposed merger is problematic given the rise in food prices in recent years. “It’s a very difficult time to try to get together in the grocery store — it’s a very difficult time to sell a case,” Sundaram said.
Doubts in the stock market
Another unsold team? Stock market investors. Kroger agreed to buy Albertsons for $34.10 per share, including a $6.85 special dividend. But Albertsons shares now trade at a “reasonable discount” to the terms of the deal, having hit a three-year discount of $17.94 earlier this week.
“That’s what investors are telling us that the deal may not go through,” Sundaram said.
CFRA research, on the other hand, puts the probability of a successful merger at 20%. “It is possible that a judge will rule that this is an anti-competitive merger and block the deal,” Sundaram said.
Trying to predict the outcome of the case means taking into account everything that has been said during the testimony—in addition to things that haven’t been said so far, namely, how Nelson might lean. He was nominated to the federal district court in 2022 by President Joe Biden, and there are political underpinnings to the case, especially given the November election.
FTC case
When the FTC filed to block the merger, it was joined by attorneys general in eight states and the Washington, DC Commissioners appointed by the sitting president, which is why the Biden administration is given credit (or blame) for delaying Kroger. – Albertsons is working together.
The FTC’s challenge to the finding hinges largely on the amount of overlap between the two companies, both of which now operate in more than 30 states. The commission stated that the merger will harm consumers by eliminating competition on price and quality and also harm many unionized workers of both companies, who will lose the power to negotiate better terms of employment.
In an effort to sweeten the deal to legitimize antitrust, Kroger and Albertsons proposed to sell hundreds of stores and several brands to C&S Wholesale Grocers. But again, the FTC is skeptical, noting that the proposed separation is a “hodgepodge” of stores that are “bundled together.”
Consumer case
But there may be hope for now that the deal can pass, underscoring CFRA’s 20% chances. “There is a possibility that the government will look forward to the merger,” Sundaram noted.
Consumers argue that they have been losing market share for a long time and that puts them at a competitive disadvantage. Walmart actually sells more food than any other company in the US, accounting for more than 20% of the market share by various estimates. A combined Kroger-Albertsons would not surpass Walmart’s dominance in this sector.
Considering the current state of the competitive landscape, considering these other types of stores, Sundaram says that could strengthen the case for consumers. The companies, collectively, say they are facing a competitive problem against Walmart and Amazon, two behemoths that are eating up unaffordable market share.
Finally, a successful merger will depend on more certainty that C&S Wholesale Grocers can successfully operate the stolen stores.
Can Albertsons survive?
Regardless of what ultimately happens, the court case has revealed information that could upset consumers—and scare investors.
Executives were quoted as saying the proposed merger “creates autonomy” and agreed under oath to raise prices above past inflation rates.
While Kroger will emerge unscathed, the same could happen to Albertsons. Sundaram says that during opening statements, the company’s attorney made the “weird point” that Albertsons’ survival may depend on the merger.
According to Sundaram, this information surprised the investors. Albertsons shares have fallen more than 11% since the lawsuit began.
“We thought Albertsons was doing well,” Sundaram said. “That raises new questions if the deal doesn’t go through.”
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