Business News

The Federal Trade Commission and several state attorneys general filed a lawsuit Monday to stop Kroger, the supermarket giant, from completing its $24.6 billion acquisition of grocery chain Albertsons, saying the deal would increase competition in would affect the industry.

The agency said the deal, which would be the largest supermarket merger in U.S. history, would most likely result in higher prices for groceries for consumers and, since there are fewer supermarkets, reduce the ability of grocery store employees to earn higher wages and better working conditions to negotiate.

“This mega-merger of supermarkets comes at a time when food prices for American consumers have been steadily rising in recent years,” Henry Liu, director of the FTC’s Bureau of Competition, said in a press release. “Kroger’s acquisition of Albertsons would result in further grocery price increases for everyday items and further exacerbate the financial burden consumers across the country face today.”

The FTC's federal lawsuit was joined by attorneys general from Arizona, California, Illinois, Maryland, Nevada, New Mexico, Oregon, Wyoming and the District of Columbia.

The lawsuit is the latest move by the Biden administration to take a tougher stance on mergers. In recent years, it has challenged several large deals, including drugmaker Amgen's $27.8 billion acquisition of pharmaceutical company Horizon Therapeutics; JetBlue's proposed $3.8 billion purchase of Spirit Airlines; and Microsoft's $70 billion acquisition of video game maker Activision Blizzard.

But the FTC has lost in court in many cases, including in its attempt to block the Microsoft merger. Kroger said in a statement that the FTC's move to block the merger would actually harm grocery store shoppers and employees.

“The FTC’s decision makes it more likely that American consumers will experience higher food prices and fewer grocery stores at a time when communities across the country are already facing high inflation and food deserts,” the company said.

Albertsons reiterated these sentiments in its own statement. It added that a successful blocking of the merger by the FTC “would harm customers and help empower larger multichannel retailers like Amazon, Walmart and Costco – the very companies the FTC claims to be reining in.” would allow them to further increase their sales.” growing dominance of the food industry.”

Both chains said they looked forward to making their case for the merger in court.

In the 16 months since Kroger announced plans to acquire Albertsons, the proposed merger has faced opposition. Executives from the supermarket giants – two of the largest grocery chains in the United States – argued that the merger was necessary to compete with major retailers such as Walmart, Costco and Amazon. These retailers, executives said, used their size to negotiate better prices with manufacturers and suppliers, allowing them to sell cereal, yogurt, pasta and other staples to consumers at lower prices.

But a range of critics, including consumer advocates, politicians, unions and independent grocery chains, said combining Kroger and Albertsons would create a powerful giant with sales of more than $200 billion and about 5,000 stores in 48 states and the District of Columbia arise. In some markets such as Chicago, Dallas, Los Angeles and Seattle, there is significant overlap between chains.

Cincinnati-based Kroger operates 2,750 grocery stores in the United States under the Ralphs, Dillons and Harris Teeter brands. Albertsons, based in Boise, Idaho, operates 2,200 supermarkets under names such as Albertsons, Safeway and Vons.

Jon Donenberg, deputy director of President Biden's National Economic Council, said in a statement that Mr. Biden believes competition is the key to capitalism. “When large companies are not constrained by healthy competition, they too often fail to pass on cost savings to consumers and exploit their workers,” he said.

As inflation continues to drive up food prices, the proposed mergers would leave consumers in some regions with little or no choice over where to buy staples, critics said. Others warned that the merger would lead to higher food prices and possible layoffs with less competition.

“This decision shows that the FTC understands how the outsized power of large retailers is harming the entire food system,” said Stacy Mitchell, co-executive director of the Institute for Local Self-Reliance, a nonprofit advocacy group for independent businesses. “These two giants are already exerting their power as dominant buyers of food and goods by pressuring suppliers to give them discounts and benefits not offered to smaller grocery retailers.”

Marc Perrone, president of the United Food and Commercial Workers International Union, said the guild would continue to oppose “any merger that would negatively impact our hundreds of thousands of hard-working members who work at Kroger and Albertsons.”

To address some concerns about the merger, Kroger and Albertsons announced plans in September to sell 413 stores nationwide to C&S Wholesale Grocers for $1.9 billion. The sale is subject to approval of the Kroger-Albertsons merger.

But the FTC said the divestiture proposal created a hodgepodge of unrelated stores and brands that were cobbled together and fell far short of creating a standalone company that could compete with a combined Kroger and Albertsons company.

The FTC also argued that quality would likely decline in a combined supermarket giant. Currently, the two stores compete by offering fresher products, flexible store and pharmacy hours, and curbside pickup service. If they merge, the incentive to compete by improving product quality and customer service would diminish, the FTC said.

Critics also called the proposed merger a big payday for Albertsons' private equity owners. Early last year, Albertsons paid shareholders a special $4 billion dividend after surviving a lawsuit from the attorney general in Washington. The largest recipients of this dividend, which was funded by a combination of cash and debt added to Albertsons' balance sheet, were Albertsons' private equity owners, including Cerberus, which owned 73 percent of the company at the time.