FTC grills Kroger, Albertsons CEOs on merger deal

Kroger and Albertsons CEOs faced intense questioning in court on Wednesday on a wide variety of topics related to their proposed $24.6 billion merger, including executive compensation and allegations of destroying evidence. 

It was the biggest day of testimony in the case brought by the Federal Trade Commission and nine attorneys general, calling on U.S. District Court Judge Adrienne Nelson to approve a preliminary injunction that would effectively kill the deal. Proceedings began on Aug. 26. 

The Cincinnati Enquirer reported that FTC Deputy Chief Trial Counsel Susan Musser challenged Kroger CEO Rodney McMullen on claims that the two grocery chains are not head-to-head competitors and that Kroger is focused on competition from larger retail operations like Walmart, Costco, and Amazon.  

Musser argued in opening statements on Aug. 26 that over the last several years, Albertsons has become aggressive in its efforts to match Kroger’s prices. That kind of competition is good for consumers, the FTC argued.

“Albertson has created a new program called the price advisor program. This program mechanizes the process of searching and comparing Albertsons prices to its primary grocery competitors prices, and it makes alerts and recommendations based on that competitor's pricing. Again, Kroger banners in areas where they overlap,” she said on the first day of the hearing.

Musser also questioned McMullen on Kroger’s promise to not close any stores if the deal is approved, according to the Cincinnati Enquirer article. McMullen said in court that some closures are a possible outcome if the merger goes through. That could include relocating or consolidating stores in some markets. 

Albertsons CEO Vivek Sankaran also took the stand on Wednesday, telling the court that Albertsons and other grocery chains face challenges from new “category-blurring” competitors. He said store closures and layoffs would be necessary if the merger is rejected. 

“I do not want to go down this road,” Sankaran said, according to the Cincinnati Enquirer article.

The FTC also reminded the court of lucrative compensation packages Kroger and Albertsons executives will receive if the deal goes through. Sankaran alone stands to receive a $43 million golden parachute if the companies merge. 

Sankaran received $15.1 million in compensation in 2023, more than two-thirds of which came in the form of stock awards. 

The FTC also scrutinized Albertsons’ decision to pay out $4 billion in dividend payments to investors in early 2023 because of the proposed merger. FTC attorney Albert Teng noted that Sankaran had told federal lawmakers in a Senate hearing in 2022 that the company was in “excellent financial condition” just a few months prior to the dividend payout. 

“Did you tell Congress about (potential) layoffs, closures and, exiting markets?” Teng asked Sankaran on the stand.

The FTC also grilled Sankaran for deleting text messages related to the deal, which federal regulators have suggested include messages showing the chains would raise prices if the deal is approved. 

A couple of weeks after the merger was proposed on Oct. 13, 2022, the FTC informed the two grocers that it was launching an investigation into the deal to “cease all document destruction activities…”

BoiseDev, a local news site in Boise, Idaho, where Albertsons is headquartered, reported that Sankaran said in court he was unaware that he had turned on auto-delete for text messages on his cell phone. 

The FTC estimated that as many as 1,700 text messages were deleted after it directed the two companies to preserve all documents related to the merger.