The largest proposed grocery store merger in U.S. history is going to court.
On one side are supermarket chains Kroger and Albertsons, which say their planned merger will help them compete against rivals like Costco COST0.19%. On the other side are antitrust regulators from the Federal Trade Commission, who say the merger would eliminate competition and raise grocery prices in a time of already high food price inflation.
Starting Monday, a federal district court judge in Portland, Oregon, will consider both sides and decide whether to grant the FTC’s request for a preliminary injunction. An injunction would delay the merger while the FTC conducts an in-house case against the deal before an administrative law judge.
Kroger KR-0.52%, based in Cincinnati, Ohio, operates 2,800 stores in 35 states, including brands like Ralphs, Smith’s and Harris Teeter. Albertsons
ACI0.87%, based in Boise, Idaho, operates 2,273 stores in 34 states, including brands like Safeway, Jewel Osco and Shaw’s. Together, the companies employ around 710,000 people.
Here’s what to know ahead of the hearing, which is expected to last until Sept. 13.
The two stores want to join together, but why?
Both Kroger and Albertsons, which are big grocery stores in the U.S., said in October 2022 that they were going to join. The two companies say that the $24.6 billion deal will keep prices low by giving them more power with suppliers and letting them join their store brands. They also say that a union would help them compete with big stores like Walmart.
WMT 0.16% holds about 22% of all food sales in the U.S. Kroger and Albertsons would hold about 13% of the market together.
Why does the FTC not want the deal to happen?
Antitrust officials say the planned merger would get rid of all competition, which would make prices go up, quality go down, and workers’ wages and perks go down. In February, the FTC filed a lawsuit with an administrative judge at the FTC to stop the merger. At the same time, the FTC sued in federal court in Oregon and asked for a preliminary order. A number of state attorneys general, including those from California, Illinois, Maryland, Nevada, New Mexico, Oregon, and Wyoming, joined the federal case.
If Kroger and Albertsons join together, will they close some stores?
No, they say. Kroger and Albertsons have decided to sell 579 stores in areas where their stores overlap if the deal goes through. The buyer would be C&S Wholesale Grocers, a company based in New Hampshire that sells to small grocery stores and also owns the Grand Union and Piggly Wiggly store names. Kroger and Albertsons had originally planned to sell 413 shops, but the FTC said that C&S would not have been able to compete well with those plans. In April, Kroger and Albertsons decided to sell off more stores. With 124 stores, Washington has the most that would be sold off. Colorado comes in second with 91 stores, and California comes in third with 63.
What will happen if the judge in Oregon gives a preliminary injunction?
Kroger and Albertsons are likely to go to a higher court to fight the preliminary order, according to Mike Keeley, a partner and antitrust chair at the Washington law firm Axinn, Veltrop & Harkrider. After that, the case could go through the FTC’s own court system. However, Keeley said, companies usually back out of deals before they get that far because the process can take a year or more. This month, Kroger sued the FTC, saying that the agency’s internal processes are unconstitutional and that it wants a federal court to decide the merger’s legality. Kroger used a recent Supreme Court decision as an example of how the SEC shouldn’t be able to handle some civil fraud charges inside the agency instead of in court in that Ohio case.
What will happen if the judge in Oregon sides with Kroger and Albertsons?
The FTC is expected to appeal the decision, but Keeley said it’s uncommon for an appeals court to overturn a lower court’s decision on a merger. This means the FTC may decide not to pursue the appeal. The case could still go through the administrative process at the FTC. It’s not clear how the race for president might affect the case. The Biden government has been very tough on mergers that it thought hurt competition. However, lawmakers from both parties were skeptical of the merger at a hearing in 2022.
Could state courts still stop the merger if the federal court lets it go through?
In state courts, both Colorado and Washington have tried to stop the merger. That doesn’t happen very often; states are usually co-plaintiffs in a federal case. But each state thinks there is a lot at stake. Washington has more than 300 Kroger and Albertsons shops, while Colorado has more than 200. According to Keeley, both states could try to get an order from a different court if the FTC loses. But if Kroger and Albertsons win in the federal case, it would be unusual for another court to stop the merger.
