As reported in this column in October 2022, Kroger fought for an express checkout on its acquisition of supermarket rival Albertsons. They have failed, so far. The Federal Government’s lawsuit to block the merger commenced this week – and the antitrust enforcers have argued that the deal would fuel additional inflation.
The $24.6 billion deal seeks to combine the 2nd and 4th largest grocers to create a behemoth with sales totaling 16% of the U.S. grocery market. As predicted, the regulatory backlash has been intense.
According to DealPulse’s M&A database, which harnesses both AI and attorneys to digest the granular deal points of publicly announced transactions, the transaction’s documents contemplated regulatory scrutiny, including the clause: “In connection with obtaining the requisite regulatory clearance necessary to consummate the transaction, Kroger and Albertsons Cos. expect to make store divestitures.” While the companies’ joint press release anticipated the deal would close in early 2024, they certainly missed that deadline as US District Judge Adrienne Nelson in Portland, Oregon is scheduled to rule on the fate of the merger in the next three weeks.
From the start, analysts anticipated a lengthy regulatory approval process, as the Biden Administration’s more aggressive antitrust policy had significantly increased enforcement activity; however, scrutiny has only intensified since 2022 as inflation has become a hot-button issue in the Presidential election.
Source: Axios
As the Covid-19 lockdowns ended, the U.S. economy boomed, driving inflation. When this deal was negotiated during 2022, inflation was beginning to increase, but, little did the two companies know, it continued to soar for the next two years. The Federal Reserve fought this rise with an unprecedently swift increase in interest rates. These hikes shook the U.S. banking system but eventually had their intended effect of curtailing inflation. While inflation stopped increasing to rapidly, however, the damage was done: the years of increasing prices had a cumulative effect of raising CPI by 21%.
Grocery stores represent a particularly sensitive sector. While consumers can choose to not buy that new smartphone or skip their next vacation, they need food. Therefore, high food prices have become a central issue in the presidential election, with the candidates proposing varying measures to combat it.
President Biden has continued to push an antitrust agenda as a remedy, blaming high prices on lack of competition. Unsurprisingly in light of this context, the Federal Trade Commission has fought to block the Kroger/Albertsons union. In February of this year, the FTC filed suit along with 8 states and the District of Columbia, claiming, the “[l]argest supermarket merger in U.S. history will eliminate competition and raise grocery prices for millions of Americans, while harming tens of thousands of workers.” Kroger and Albertsons argue that the merger will enable economies of scale will enable them to provide better prices and compete with their larger competitors: Walmart and Costco. The judge will decide on this case in the next 2-3 weeks, while a separate case from Colorado and Washington will commence next month.
Kroger was advised on the merger by law firms Weil, Gotshal & Manges LLP and Arnold & Porter Kaye Scholer LLP. Albertsons was advised by law firm Jenner & Block LLP and White & Case LLP.
