The Federal Trade Commission (FTC) is reviewing the proposed acquisition of Albertson’s Company by the Kroger Company in a proposed $25 billion transaction, euphemistically referred to as a “merger”.  As a preemptive measure, the two companies could divest up to 300 stores with a value of $1 billion located in regions of the Pacific northwest, southern California and metropolitan Chicago where they compete.  Currently Kroger and Albertsons operate close to 5,000 stores.

Prior to or immediately subsequent to the acquisition, stores could either be sold individually or be placed in a holding company with either divestiture or a subsequent spin-off.

The Federal Trade Commission will review the plan and will require proof that the divested stores will be financially viable. Consumers will not be protected if the “merger” results in a more powerful Kroger and the demise of Albertson’s and their banners. The FTC does not want up to 400 empty stores or a combination of flea markets and transient fitness centers.  Based on the merger of Albertsons and Safeway, the FTC has justifiable concerns over the proposal by Kroger.

Lina Khan chair of the FTC previously published on the outcome of the purchase of 146 divested stores following the Safeway-Albertsons merger to Haggen, a small regional company.  In the event, this purchaser of the divested stores was forced to file for bankruptcy with Albertsons subsequently reacquiring the stores. Khan wrote, “Even a casual observer could have predicted that Haggen would have great difficulty expanding its store fronts nearly ten-fold.”

Kroger and Albertsons will have to assure a highly skeptical FTC that divested stores will represent real competition.  To this end, negotiations are in progress with potential buyers including Ahold Delhaize that operates Stop & Shop, Giant, Food Lion and Hannaford and would benefit from establishing operations in western states.