Decision time for Kroger-Albertsons merger gets closer

Decision time on the Kroger-Albertsons merger deal looks to be arriving just about when the two supermarket giants expected.

When the $24.6 billion transaction was announced on Oct. 14, 2022, Kroger and Albertsons said they anticipated the agreement—pending regulatory approval—would close in early 2024. That timetable now looks about right for a decision from the Federal Trade Commission—though the prospect of the deal closing remains uncertain.

Citing a posting on X from investigative M&A news service Dealreporter, investor website Seeking Alpha reported last week that Kroger and Albertsons were slated to certify “substantial compliance” with the FTC’s second information request around Nov. 15, and the transaction wouldn’t close prior to Feb. 13. The Dealreporter post said the information request compliance date was stated in the “Whalen shareholder lawsuit,” a consumer suit against the merger that was dismissed back in August.

Cincinnati-based Kroger received a second request for information from the FTC on the proposed merger in early December. The request signaled that the FTC held significant antitrust concerns and sought a much deeper investigation, which industry observers at the time said could extend the review by months and the time to finalize the transaction by a year. After Kroger and Albertsons announced an early 2024 target for closing the deal, Wall Street analysts and other observers said regulatory clearance likely would take longer for such a large transaction—the biggest U.S. supermarket merger ever—and could last up to two years.

Related:Kroger-Albertsons merger naysayers deliver their message to FTC Chair Lina Khan

Then in mid-June, again citing Dealreporter, Seeking Alpha had reported that Kroger was “a couple months away from certifying substantial compliance” with that request, possibly in the calendar third quarter or early fall. That appears to have come to pass. The merger agreement (see page 84) contains a termination date of Jan. 13, 2024, that can be extended in 30-day blocks for up to 270 days, or up to early next October.

Issues in focus

Kroger has made its case for the Albertsons acquisition. Post-merger, the company plans significant investments in pricing, stores, local suppliers and employees, and it has said no layoffs would result from the merger. Kroger also has said union contracts will be honored. And there’s a $1.9 billion divestiture deal with a large, experienced and unionized grocery industry player: C&S Wholesale Grocers. Under an agreement announced in early September, Kroger-Albertsons plans to sell 413 stores, eight distribution centers and two regional offices in 17 states and the District of Columbia plus five Albertsons private brands to C&S. The pact, too, might require C&S—which also pledged to honor union contracts—to buy another 237 stores based on Kroger and Albertsons securing FTC and other regulatory approval for their merger.

Related:Kroger-Albertsons merger divestiture to C&S called 'adequate remedy'

The ball is now in the FTC’s court. Participating in public “listening sessions” in affected markets around the country, Chair Lina Khan appears to be going the extra mile to get the agency’s call right on the Kroger-Albertsons merger. A common claim in public comments at these meetings: the 2015 Albertsons-Safeway merger’s sale of 146 stores to 18-store grocer Haggen indicates that divestiture remedies don’t work. Hmm. The sessions also revealed lots of public distrust on whether Kroger-Albertsons would live up to post-merger promises.

It also remains to be seen how much the FTC will weigh grocery retail competition beyond supermarkets (as mass retailers continue to siphon market share) and the leverage that big retailers—dubbed “power buyers”—now have in the grocery supply chain. State efforts against the Kroger-Albertsons deal are pending or in the works as well, the latest reportedly being in California.

Related:Kroger-Albertsons merger stirs uneasiness in California

In a Bloomberg interview in May, Kroger Chairman and CEO Rodney McMullen reiterated that his company would pursue litigation, if necessary, in the event that the Albertsons acquisition deal is rejected by regulators. And in September, Axios reported that a former FTC official thinks the agency likely will challenge the merger.

The merger deal has passed the one-year mark. So even as the wait for a decision gets shorter, a lot of issues are still hanging in the balance.