CHAINS CALL INTERFERENCE IN MERGER GAME

Elliot Zwiebach

Government regulation has impacted supermarket mergers to varying degrees throughout the past 50 years.

In 1958, the Federal Trade Commission launched a formal investigation of "the integration and concentration of economic power at the retail level of distribution."

In April 1959, the FTC made its initial move in the food field when it charged two chains with antitrust violations: Kroger Co., Cincinnati, the nation's third-largest chain, which had acquired 42 corporations with 1,900 stores since 1928; and National Tea, Chicago, the fifth-largest chain, which had acquired 13 corporations with 440 stores since 1952.

Henry J. Eavey, president of Super Market Institute, said the charges against the two chains constituted "an action against every man in our industry, small or large, [because] if we permit the government to break up the large chains, what's to prevent them from breaking up the small chains?"

It took years for the two cases to be settled, with National Tea opting for an out-of-court settlement and accepting a 10-year ban on mergers.

In November 1968, the FTC terminated the case against Kroger, saying, "The public interest does not warrant further proceedings."

In 1966, the National Council on Food Marketing recommended legislation requiring compulsory premerger notification for any business combinations and giving regulatory agencies temporary cease-and-desist powers to enforce that requirement, an approach that was adopted by the FTC when it issued new food-merger guidelines that made it clear, SN reported, that large retailers would have to content themselves with internal expansion rather than growth through acquisition.

In 1976, the Hart-Scott-Rodino Antitrust Improvement Act of 1976 took effect, formalizing the prenotification procedure for all mergers.

Merger activity picked up in the late 1970s as the 10-year consent agreements signed by some companies began to expire. The government maintained an aggressive stance, however, with the FTC stepping in during 1981 to block Grand Union's 1979 purchase of Colonial Stores in Atlanta -- a move that was ultimately reversed by the U.S. Supreme Court in 1983 when it ruled the arena for determining competition in the retail food industry is broader than supermarket sales alone but should encompass "all retail grocery sales" in an area.

In 1985, the FTC abandoned its 1967 guidelines that took action on mergers based on combined sales volumes and adopted new guidelines that considered market share, industrywide conditions, barriers to entry and technological changes in evaluating food mergers -- part of an effort, the FTC explained, "to reduce unneeded regulations."

The FTC continued to take a more flexible, pro-business approach to mergers through much of the 1990s, as demonstrated in 1998 when it required Kroger to divest only eight stores when it sought to acquire Fred Meyer Inc., Portland, Ore., and required Albertson's to divest 145 stores -- because of the overlap of Albertson's and Lucky in California -- when it sought to acquire American Stores Co.

The commission toughened up later that year, however, blocking Kroger's attempt to buy Winn-Dixie stores in Texas and Oklahoma, and asking for a large number of divestitures before allowing Ahold to acquire Pathmark Stores. Ahold ultimately broke off the deal "in the face of strong opposition" from the FTC, SN reported.