On September 27th, Judge Adrienne Nelson received submissions following the conclusion of testimony in the case filed by the Federal Trade Commission requesting a preliminary injunction to block the proposed merger of the Kroger Company with Albertson’s Corporation.
The FTC supplementary brief expanded on testimony maintaining that the merger would be anti-competitive and would “incentivize Kroger to raise prices in hundreds of communities across the country.” Dr. Nicholas Hill an agricultural economist reviewed the U.S. Department of Justice Horizontal Merger Guidelines to establish that the proposed transaction would impact 1,922 individual markets. The FTC brief also emphasized that Albertson’s represents the first or second major competitor to Kroger in 14 of 17 markets where both companies operate. The analysis conducted by Dr. Hill demonstrated that despite the competition represented by dollar stores and online retailers, the merger would still result in higher prices ultimately in hundreds of markets.
The FTC maintains that consumers shop across multiple store formats and that as an Agency it is not necessary to prove “that there is a subset of customers who only desire one-stop shopping for groceries or who are committed to only one store.”
The FTC rejected the promise to reduce prices since this is unenforceable along with expressed intentions to improve salaries and conditions for workers and not to close stores. The FTC correctly states that “promises can be broken” since the primary responsibility of Kroger management and directors is to its shareholders. In support of this contention, the FTC discovered internal documents in which an Albertson’s executive stated, “We all know prices will not go down” discounting the promise to devote $1 Billion to reducing prices as a “sweetener” to approve the deal.
The plan to divest 579 stores was also questioned since C&S Wholesalers has minimal experience in operating a large number of supermarkets. Haggen’s ghost haunted the courtroom and was cited as a valid reason to oppose the merger as structured. Albertsons divestiture of 146 stores to Haggen in 2015 resulted in sixty percent being closed within a year with the remainder reacquired by Albertsons. If the divested stores were to be purchased by an established retailer such as Ahold-Delhaize or even a deep discounter such as Aldi or Lidl, the transaction might appear more feasible. Opponents of the merger have pointed to the fact that Kroger and Albertsons picked a weak competitor that would not represent competition. Based on this size of C&S Wholesalers, and their history with the Price Chopper acquisition, the FTC regards the C&S Wholesale strategy to support the transaction as “implausible at best”.
Given the evidence presented in the form of witness testimony and the supporting brief it is the opinion of informed observers that Judge Nelson will grant the preliminary injunction, effectively killing the merger unless the ruling is overturned on appeal.