U.S. Judge Blocks $25 Billion Kroger-Albertsons Merger

By Jody Godoy
(Reuters) – A U.S. judge blocked the pending $25 billion merger of U.S. grocery chains Kroger (NYSE:KR) and Albertsons (NYSE:ACI) on Tuesday, marking a victory for the Federal Trade Commission (FTC).

FTC's Argument

The FTC argued during a three-week trial in Portland, Oregon, that the merger would eliminate competition between the two top traditional grocery chains, leading to higher prices for shoppers and diminished bargaining power for unionized workers.

Ruling

U.S. District Judge Adrienne Nelson agreed with the FTC, stating that the merger likely would remove direct competition and therefore be unlawful. The ruling, which could be appealed, is a significant win for FTC Chair Lina Khan and President Biden’s administration, who aim to address inflation at grocery stores that has plagued Americans since the pandemic.

Parallel State Ruling

In a separate ruling, a Washington state judge also blocked the merger, with Attorney General Bob Ferguson highlighting that half of all supermarkets in the area are owned by either Kroger or Albertsons.

Market Response

Following the ruling, Albertsons shares declined by 2.3%, while Kroger's shares rose by 5.1%.

White House Reaction

The White House expressed pride in opposing large corporate mergers that increase prices and harm small businesses. FTC spokesperson Douglas Farrar reinforced that strong antitrust enforcement benefits consumers, workers, and small businesses.

Company Responses

Kroger and Albertsons expressed disappointment with the rulings and are considering their next steps. An Albertsons spokesperson stated that the merger would have expanded competition and benefited customers by lowering prices.

Grocery Costs Context

The deal symbolized escalating grocery costs in the U.S., where food prices have risen by 25% over the past four years. Although food inflation seems to be cooling off in 2024, higher grocery bills remain a concern for consumers.

Legal Context

The FTC’s lawsuit, supported by eight states and the District of Columbia, was aimed at blocking the merger. Kroger defended the deal, claiming it would result in price reductions at Albertsons stores, which reportedly have prices 10-12% higher.

Judge's Evaluation

Judge Nelson rejected Kroger's arguments about efficiencies and price cuts, stating they were not verifiable or specific to the merger. She highlighted that business realities could alter the feasibility of their promises after the merger.

The FTC's theory regarding decreased competition for unionized labor was found lacking in evidence, but the judge noted the agency made a compelling case overall.

Future Landscape

If the merger proceeded, Kroger would own approximately 5,000 stores across the U.S. The companies argued they needed to merge to compete against larger entities like Walmart and Amazon. While they proposed selling 579 stores to preserve competition, Nelson questioned the viability of the proposed buyer, C&S Wholesale Grocers.

Labor Concerns

Grocery workers’ unions expressed concerns about potential job losses stemming from the merger. Six local unions representing over 100,000 grocery workers urged Kroger and Albertsons to abandon the deal and refocus on store operations.