One week after Kroger announced its plans to merge its business with Albertsons, opposition is growing amid antitrust concerns from stakeholders and government officials.
The proposed $24.6 billion deal would merge Albertsons’ chain of more than 2,270 stores in 34 states and nearly 300,000 employees with Kroger’s sprawling network of banners that includes Harris Teeter, Fred Meyer, Ralph’s, King Soopers and other grocery chains. Kroger accounts for over 27,000 stores employing around 420,000 people.
Albertsons followed up the merger news on Tuesday with its Q2 earnings results. Net sales and other revenue was up $17.9 billion during the 12-week period ending September 10, a 7.4% increase from the same period in 2021. Gross margins were 27.9%, a 0.9% decrease from Q2 2021.
The company also announced a proposed $4 billion special dividend that will be distributed to stockholders as part of the acquisition’s $34.10 per share consideration. The approximately $6.85 per share dividend is expected to be paid on November 7 as of the close of business on October 24.
Albertsons stock was trading at $21.04 per share at the time of posting.
Divestitures Might Not Be Enough To Satisfy Antitrust Advocates
Kroger and Albertsons’ plan to establish a spin-off company (or spinco) that would operate as a standalone public company for 100 to 375 former Albertsons stores is one of the main mechanisms the companies are hoping will help them pass regulatory approval.
“It’s a really clean option in the sense that it could potentially be a faster way to package up a strategy around divestitures,”said Gary Millerchip during the Friday investor call announcing the merger. “And from a Kroger perspective, it gives confidence in the level of price that you achieve for those stores.”
Yet, the spinco has not diverted attention from antitrust regulators.
Sen. Amy Klobuchar (D-MN), who serves as Chairwoman of the Senate Judiciary Subcommittee on Competition Policy, Antitrust, and Consumer Rights, said on Tuesday that she had “serious concerns” about the merger and that the subcommittee intended to host a hearing on it next month.
The same day, Klobuchar’s office released a letter cosigned by Sens. Cory Booker (D-NJ) and Richard Blumenthal (D-CT) urging the Federal Trade Commission (FTC) to investigate the transaction. The letter called on the FTC to keep in mind the recent inflation in grocery pricing and to use available data to determine the potential implications for consumers.
“As you are aware, the grocery industry has become increasingly consolidated. When Albertsons merged with Safeway in 2015, the FTC found that the merger was likely to harm competition in 130 separate markets and required the company to sell more than 150 stores. Given the increases in food prices recently, we question whether the divestitures that the agency secured when approving that deal were sufficient, especially since Albertsons was allowed to buy back many of the stores that the FTC required it to sell.”
It remains to be seen whether the FTC will take upon a monopoly case against the Kroger-Albertsons merger, but current FTC chair Lina Khan has shown an aggressive stance towards antitrust laws.
Last month, Khan gave a speech at Fordham University in New York where she gave a statement saying “we must continue to take those challenges head-on, rather than retreat and ignore our statutory obligation.”
She went on to say, “faithfully enforcing the antitrust laws will necessarily involve taking action against dominant firms, some of which are among the wealthiest and most powerful companies in the world. These companies are often able to marshal enormous resources to try to dissuade enforcers. But upholding the rule of law requires that we administer our statutes without fear or favor.”
Grocery Union Expresses Concern Over Merger Implications on Labor
In addition to federal scrutiny, the potential merger is facing opposition from the United Food and Commercial Workers International (UFCW), whose president Marc Perrone released a statement last Friday expressing the union’s concern.
“The proposed merger between Kroger and Albertsons has serious implications for hundreds of thousands of our UFCW members and America’s families who are more concerned than ever about inflation’s impact on the price of their food and groceries, prescription drugs, and gas,” Perrone stated. “As America’s largest union of essential workers, protecting the livelihoods of this nation’s grocery workers, union and non-union, is our highest priority.”
No definitive decision has been made by the UFCW but some union leaders are already expressing dismay that the deal would reduce the power of collective bargaining.
UFCW Local 324 leader Andrea Zinder said in a statement that “the proposed merger of these two grocery giants is devastating for workers and customers alike and must be stopped.”
Jim Araby, director of strategic campaigns for UFCW Local 5, was quoted in the Sacramento Bee criticizing the move as bringing more consolidation to an industry that has already suffered as a result of decreased competition.
“Point to a merger that’s been good for workers and consumers,” Araby said.