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Proposed acquisition of Albertsons by Kroger

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Proposed acquisition of Albertsons by Kroger
InitiatorKroger
TargetAlbertsons
TypeFull acquisition
Cost$24.6 billion
InitiatedOctober 14, 2022
CanceledDecember 11, 2024

In October 2022, American grocery chain Kroger agreed to purchase rival Albertsons for $24.6 billion. Both companies, comprising two of the largest supermarket chains in the United States,[1] serve most of the country's mid-tier grocery market. Kroger planned to compete with non-union grocery chain Amazon Fresh, which includes Whole Foods Market, discount department store chains Target and Walmart, and the warehouse club retail chains Costco and Sam's Club. This merger would have created one of the largest grocery store chains in the United States, combining nearly 5,000 stores and employing approximately 700,000 people.[2]

In February 2024, the Federal Trade Commission (FTC) filed a lawsuit to block the merger stating the deal would raise prices, lower quality, limit choices for consumers, and harm workers.[3] In December 2024, a U.S. District Judge agreed with the FTC, that the merger would risk reducing competition at the expense of both consumers and workers. The federal judge halted Kroger's acquisition of Albertsons.[4] The merger was also simultaneously halted by a Washington state judge that ruled the merger violated consumer-protection laws within the state.[5] Both companies terminated the deal following the rulings.[6]

Background

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Previous mergers and acquisitions

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Albertsons merged with Safeway in 2015 in a $9.2 billion deal which included an FTC requirement to spin off 168 stores to stop the new company having a monopoly in certain markets.[7] The commitment was the largest ever divestiture of supermarkets at the time.[8] 146 stores were sold to Haggen, a Washington supermarket chain, for around $300 milion.[7] The deal was closed in January 2015;[9] Haggen ended up announcing in August that it would close or sell around a fifth of its stores,[10] and in September sued Albertsons for allegedly sabotaging its expansion, before filing for bankruptcy.[9] Albertsons bought 33 former Haggen stores for $14.3 million at a bankruptcy auction in November, many for the nominal price of $1 since they came with liabilities as part of their sale.[7] The failure of the spin-off of stores to Haggen has been seen as a particular concern for the proposed Albertsons–Kroger merger.[8]

Size and market cap of each company

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Lead-up to the 2022–2024 merger

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In October 2022, Kroger agreed to buy Albertsons for $34.10 per share, valuing the deal at $24.6 billion.[1] The acquisition aims to enhance Kroger's competitive edge by expanding its market presence and leveraging economies of scale to offer better prices and services to customers. However, the merger has faced significant scrutiny from regulators and opposition from various stakeholders.[11]

Challenges

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Union challenges

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In May 2023, the United Food and Commercial Workers International Union (UFCW) announced their opposition to the deal.[12] The International Brotherhood of Teamsters also oppose the deal,[13] saying it "threatens jobs, wages, and benefits for thousands of workers".[14]

Several UFCW local determined in July 2024, that Kroger's and Albertson's proposed divestiture of hundreds of stores to C&S Wholesale Grocers would reduce consumer access to medications and harm pharmacy competition nationwide. A majority of the 579 stores slated to be acquired by C&S Wholesale Grocers would include pharmacies according to John Marshall, a financial analyst with UFCW Local 3000 and UFCW Local 3245.[15]

Regulatory challenges

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Federal

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On November 29, 2022, the chief executives of the two companies went before the antitrust panel of the Senate Judiciary Committee to defend the merger.[16]

The Federal Trade Commission (FTC) raised concerns about the potential anticompetitive effects of the merger. The FTC filed a lawsuit in February 2024 to block the acquisition, arguing that it would reduce competition, lead to higher grocery prices, and negatively impact workers’ wages and benefits.[17]

On December 10, 2024, U.S. District Judge Adrienne Nelson agreed with the FTC, that the merger would risk reducing competition at the expense of both consumers and workers. Judge Nelson halted Kroger's $24.6 billion acquisition of Albertsons with a preliminary injunction. Lawyers for the companies previously have said that if the judge were to rule against the deal, the acquisition would likely be called off.[18]

State

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Attorneys general from Arizona, California, the District of Columbia, Illinois, Maryland, Nevada, New Mexico, Oregon and Wyoming joined the FTC's lawsuit to block the merger.[19]

In January 2024, Bob Ferguson, the Washington Attorney General filed a lawsuit to stop the merger.[20] In February 2024, Colorado Attorney General Phil Weiser filed a lawsuit in an attempt to stop the merger due to his belief that it would greatly reduce competition and harm Coloradans.[21]

On December 10, 2024, King County Superior Court Judge Marshall Ferguson ruled in favor of blocking the deal for the merger. Throughout the three week trial, the state argued that C&S Wholesale did not have sufficient retail experience to effectively operate the stores it would be acquiring and that it would end up selling or simply closing the locations. State regulators also warned that the plan to preserve competition through the divestiture of hundreds of Kroger and Albertsons stores would be fatally flawed. The Superior Court judge said, "The effect of this merger may be to substantially lessen competition in Washington." Kroger and Albertsons committed to make $1 billion in investments to keep prices lower. However, attorneys for the state called the investment promises "unenforceable, impossible to verify, and temporary."[22]

Divestiture plans

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To address regulatory concerns, Kroger and Albertsons proposed divesting 579 stores across various locations to C&S Wholesale Grocers. This divestiture was intended to maintain competitive balance in the grocery market and alleviate fears of a monopoly.[23]

Termination and aftermath

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Kroger and Albertsons terminated their merger attempt on December 11, 2024, following its block by the two judges; both companies accused each other of not doing enough to alleviate regulatory concerns.[6] The latter also filed a breach of contract lawsuit against the former, seeking at least $6 billion in damages, which includes a $600 million termination fee.[6][24]

Potential combined list of Banners

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Kroger Banners

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Albertsons Banners

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To be divested to C&S

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References

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  1. ^ a b Repko, Melissa (October 14, 2022). "Kroger agrees to buy rival grocery company Albertsons for $24.6 billion". CNBC. Retrieved July 15, 2024.
  2. ^ Coolidge, Alexander. "Kroger wants to merge with rival Albertsons: What we know about the proposed $25B takeover". USA TODAY. Retrieved July 15, 2024.
  3. ^ Sisco, Josh (February 26, 2024). "FTC, states challenge Kroger's $25 billion grocery merger with Albertsons". POLITICO. Retrieved December 11, 2024.
  4. ^ Kaye, Danielle (December 10, 2024). "Federal Judge Blocks $25 Billion Kroger-Albertsons Grocery Merger". The New York Times. Retrieved December 10, 2024.
  5. ^ Selyukh, Alina (December 10, 2024). "Kroger and Albertsons grocery megamerger halted by two courts". NPR. Retrieved December 10, 2024.
  6. ^ a b c Durbin, Dee-Ann (December 11, 2024). "Albertsons sues Kroger for failing to win approval of their proposed supermarket merger". Associated Press. Retrieved December 22, 2024.
  7. ^ a b c Robert Anglen (November 25, 2015). "Albertsons buys back stores feds forced it to sell". The Arizona Republic. Retrieved August 26, 2024.
  8. ^ a b Leah Nylen; Christopher Cannon (July 17, 2024). "Kroger-Albertsons Deal Is Haunted by 'Spectacular' Past Failure". Bloomberg News. Retrieved August 26, 2024.
  9. ^ a b Ángel González (September 9, 2015). "Struggling Haggen files for bankruptcy protection, parts with Southwest co-CEO". The Seattle Times. Retrieved August 26, 2024.
  10. ^ Ángel González (August 14, 2015). "Haggen retreats from big expansion, shedding 27 stores". The Seattle Times. Retrieved August 26, 2024.
  11. ^ Kang, Jaewon. "Kroger to Buy Albertsons in $24.6 Billion Deal That Would Create New Grocery Giant". WSJ.
  12. ^ Kang, Jaewon. "Biggest Grocery Union Opposes $20 Billion Kroger-Albertsons Deal". WSJ.
  13. ^ Josh Sisco; Marcia Brown (August 26, 2024). "Feds take grocery merger to court amid 2024 fight over high food prices". Politico. Retrieved August 26, 2024.
  14. ^ "Teamsters Statement Regarding Proposed Kroger-Albertsons Merger and Asset Sale to C&S Wholesale". International Brotherhood of Teamsters. July 10, 2024. Retrieved August 26, 2024.
  15. ^ Bigora, Peyton (July 15, 2024). "UFCW locals claim Kroger, Albertsons divesture deal could hurt pharmacy access". Grocery Dive. Retrieved December 11, 2024.
  16. ^ "Albertsons, Kroger CEOs defend $25 bln merger to U.S. Senate committee | Reuters". Reuters.
  17. ^ Meyersohn, Nathaniel (February 26, 2024). "FTC sues to block Kroger and Albertsons' $25 billion mega-merger | CNN Business". CNN. Retrieved July 15, 2024.
  18. ^ Nylen, Leah; Kang, Jaewon (December 10, 2024). "Kroger's $24.6 Billion Albertsons Deal Blocked by Judges (3)". Bloomberg Law. Retrieved December 10, 2024.
  19. ^ Giorno, Taylor (February 26, 2024). "FTC, state AGs sue to block Kroger-Albertsons merger". The Hill. Retrieved December 11, 2024.
  20. ^ Selyukh, Alina (January 15, 2024). "Warning of higher grocery prices, Washington AG sues to stop Kroger-Albertsons merger". NPR.
  21. ^ "Colorado attorney general sues to block Kroger-Albertsons merger". February 14, 2024.
  22. ^ "Kroger-Albertsons merger may be doomed as WA, federal judges block it". The Seattle Times. December 10, 2024. Retrieved December 11, 2024.
  23. ^ "Kroger, Albertsons Unveil Stores to Be Divested in Merger". Bloomberg.com. July 9, 2024. Retrieved July 15, 2024.
  24. ^ Thomas, Patrick (December 16, 2024). "What Killed a $20 Billion Grocery Deal? Albertsons Says Kroger Did". The Wall Street Journal. Retrieved December 22, 2024.


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