Report: Store divestitures for Kroger-Albertsons merger take shape

The Kroger Co. and Albertsons Cos. are mulling 250 to 300 store divestitures to address regulatory concerns about their $24.6 billion merger deal, according to Reuters.

Kroger and Albertsons have been working with the Federal Trade Commission as they’ve begun to touch base with prospective buyers for the stores, Reuters reported Friday, citing unnamed sources.

Ahold Delhaize—operator of the Stop & Shop, Giant Food, The Giant Company, Food Lion and Hannaford supermarket chains on the East Coast—and other rival grocers looking to expand are among potential buyers, according to Reuters, which said the sources requested anonymity in order to discuss confidential talks.

Stores slated for divestiture are located in market areas where Kroger and Albertsons now overlap—such as the Pacific Northwest, Southern California, Phoenix and Chicago—and in total could fetch over $1 billion if sold, the sources told Reuters.

A Kroger spokesperson said the company has no update on store divestitures. Albertsons couldn’t immediately be reached by Winsight Grocery Business for comment.

Under the merger agreement, announced in mid-October, Cincinnati-based Kroger plans to acquire Boise, Idaho-based Albertsons, a transaction that would join the nation’s two largest supermarket retailers. Together, the companies would operate 4,996 stores, 3,972 pharmacies and 2,015 fuel centers across 48 states and the District of Columbia.

Kroger and Albertsons have estimated 100 to 375 store divestitures via direct sales to buyers or spinoffs into a new Albertsons subsidiary dubbed SpinCo, which would be formed immediately before the transaction’s closing and operate as a stand-alone public company. The merger deal sets a store divestiture ceiling of 650, at which point the companies could re-evaluate the transaction.

Kroger and Albertsons have said they expect to close the deal in early 2024, pending federal and state regulatory approval and other customary closing conditions. However, Wall Street analysts and other industry observers say antitrust clearance is likely to take longer for such a large transaction—the biggest U.S. supermarket merger ever—and could last up to two years.

In early December, Kroger reported that it received a second request for information from the FTC on the proposed merger. The move signaled that the FTC holds significant antitrust concerns and seeks a deeper investigation, which observers say could extend the review by months and the time to finalize the transaction by a year.

“We will continue to work cooperatively with the Federal Trade Commission as it conducts its review of the merger, including developing a thoughtful divestiture plan,” Kroger said in a statement on the second FTC information request. “Kroger continues to expect to complete the merger in early 2024.”

The FTC’s second request came a week after Kroger Chairman and CEO Rodney McMullen and Albertsons Cos. CEO Vivek Sankaran were grilled by lawmakers in a Senate Judiciary subcommittee hearing on the planned merger. A couple of days later, McMullen gave an update on the merger in Kroger’s fiscal 2022 third-quarter conference call.

“We are making early progress on our integration planning as expected, and we continue to engage with all of our stakeholders and regulators,” he told analysts. “We are advancing our road map to close the transaction in early 2024. We look forward to working with the regulators as they review the transaction.”

The mega-merger deal also has faced hurdles on the legal front. For example, earlier this month, a group of 25 consumers from 11 states filed a private lawsuit in federal court to block the merger as well as terminate a $4 billion special dividend payment by Albertsons disclosed when the agreement was announced. Albertsons, however, was cleared to initiate the dividend payment last month after an over two-month delay from state litigation aiming to prevent the dividend.