Kroger moves to dismiss consumer lawsuit against Albertsons acquisition deal

The Kroger Co. has filed a motion to dismiss a lawsuit by a group of 25 consumers from 11 states to block its planned $24.6 billion acquisition of Albertsons Cos.

Cincinnati-based Kroger filed the motion on Wednesday in U.S. District Court for the Northern District of California in San Francisco, where the consumer group brought its suit in early February.

Kroger claims the consumers participating in that lawsuit lack standing and a plausible claim for relief. The supermarket giant also said in its motion that the consumer group’s legal action is premature, since the proposed merger is under antitrust review and any settlements with regulators, terms of the finalized deal and their impact on the grocery retail marketplace remain uncertain.

“No court has ever enjoined a merger in circumstances such as these, where private individuals have challenged a merger months before its planned consummation date, while multiple governmental entities are reviewing the merger and before anyone even knows which stores will ultimately be acquired in the deal,” Kroger stated in the April 12 motion. “This court should reject plaintiffs’ claims and dismiss their two-count complaint.”

The consumer group’s lawsuit argues that the Kroger-Albertsons merger—by combining the nation’s two largest supermarket companies—violates antitrust law because it would quell competition, reduce consumer choice and raise prices in the grocery store sector, as well as trigger job cuts from store closings. Their complaint calls on the court to halt the merger and permanently block Kroger from acquiring Albertsons under Section 7 of the Clayton Antitrust Act.

In addition, the suit requests that Albertsons be prohibited from paying out a $4 billion special dividend announced with the merger deal and that any funds already paid be disgorged. However, after a series of legal challenges, Albertsons paid the dividend to shareholders on Jan. 20. In connection with that matter, Boise, Idaho-based Albertsons on Wednesday filed a separate motion to dismiss the consumer suit against the merger in the U.S. District Court for the Northern District of California, noting that the dividend issue was moot because it had been paid almost two weeks before the consumers filed their claim.

Combined, Kroger and Albertsons generate annual revenue of about $210 billion and field 4,996 stores in 48 states and the D.C. / Photo: Shutterstock

“If Kroger’s proposed acquisition of Albertsons is consummated, the companies’ combined power will be used to increase prices for groceries, decrease the quality of food, eliminate jobs, close stores and offer less choice for consumers due to the overlap in geographic areas,” the consumer lawsuit stated.

The 25 consumers filing the private suit—which describes each as a “consumer and customer of the defendants” [i.e. Kroger and Albertsons]—come from Louisiana, Massachusetts, Nevada, California, Texas, Ohio, Colorado, Michigan, Florida, Pennsylvania and Washington.

Unveiled in mid-October, the Kroger-Albertsons merger would form a company with annual revenue of about $210 billion and 4,996 stores, 66 distribution centers, 52 manufacturing plants, 3,972 pharmacies, 2,015 fuel centers and 710,000 workers in 48 states and the District of Columbia.

Kroger and Albertsons have said the deal would enable them to better compete against larger rivals like Walmart, Amazon and big-box mass chains in an increasing omnichannel grocery marketplace. They noted that the merged company also would be able to offer consumers lower pricing via economies of scale and personalized promotions, plus improved access via integrated brick-and-mortar and digital channels.

Differing views of grocery market competition

Together, Kroger-Albertsons would command a 36% market share of U.S. supermarket sales—well above the next-largest competitor, Ahold Delhaize USA, at 9.2%, according to the consumer group lawsuit.

To address antitrust concerns, Kroger and Albertsons have said they plan to divest 100 to 375 stores via direct sales to other operators and/or a newly formed spinoff company, dubbed SpinCo. Their agreement includes a cap of 650 store divestitures, at which point the companies could opt to reassess the transaction.

The consumer group, however, claims that the store divestitures wouldn’t provide an adequate antitrust remedy and the removal of Kroger-versus-Albertsons as offsetting competitors would weaken the supermarket sector.

“Should the proposed elimination of Albertsons go unchallenged, the nation would not only lose the competition of Albertsons, but also the potential competition that Kroger would provide by further building its own national presence the old-fashioned way: by competing for customers instead of buying them,” according to the consumer suit.

Kroger noted in its motion to dismiss on Tuesday that the private lawsuit by consumers inaccurately depicts the evaluation of grocery competition as on a national rather than a market-by-market basis.

“Plaintiffs’ Clayton Act claim challenging Kroger and Albertsons’ proposed merger fails because plaintiffs fail to plead a plausible relevant market or the requisite harm in any such market,” the Kroger motion contends, later adding, “their alleged harm is supported by the lone allegation that they shopped at some Albertsons or Kroger store at some point in the past four years.”

Kroger’s motion, too, describes the consumer group’s anticompetitive claims as not being “ripe” because the merger with Albertsons is not a done deal—nor is it guaranteed—as long as it remains under review by federal and state regulators.

“Litigating the hypothetical effects of a hypothetical transaction is premature,” Kroger states in the motion. “Any theoretical competitive effects of the merger are neither known nor knowable when the scope of the merger has yet to be determined.”

*Editor's Note: Article updated with information on Albertsons' separate motion to dismiss.