A federal judge has ruled in favor of federal and state regulators who challenged Kroger’s planned $25 billion acquisition of Albertsons. The Tuesday afternoon decision to grant a preliminary injunction only temporarily blocks the merger – but it may doom the deal for good.
The Federal Trade Commission, joined by attorneys general in Arizona, California, Illinois, Maryland, Nevada, New Mexico, Oregon, Wyoming and the District of Columbia, had sought an injunction to suspend the deal until after a full review could be completed, to determine if the proposed combination would violate antitrust laws and stifle competition.
Citing the plaintiffs’ likelihood of success in proving the deal is anticompetitive, the judge granted the injunction that stops the merger in its tracks for now.
And possibly for good, as Kroger had signaled it would abandon the deal if an injunction were to be granted.
The judge agreed with the plaintiffs that the mega-merger would lessen grocery competition in markets across the country, that a proposed divestiture plan to sell hundreds of stores to a competitor was inadequate, and that the grocers’ promises of greater efficiencies and lower prices were irrelevant.
The first area of disagreement was over what exactly constitutes Kroger and Albertsons’ competition. The plaintiffs argued that the grocers’ main competitors are other supermarkets. Kroger and Albertsons argued that their “true competition” is Walmart, along with nontraditional grocery retailers like Amazon, Costco, ALDI and dollar stores. The judge agreed with the plaintiffs, that while other retailers may sell food, Kroger and Albertsons in many markets are each others’ primary competitors, and that competition would be wiped out if they are allowed to merge.
The grocers sought to alleviate concerns about their merger being anticompetitive, by announcing the sale of hundreds of stores to C&S Wholesale Grocers, who they intended to set up as a new competitor. But as a wholesaler and not a full-fledged grocery retailer, “there are serious concerns about C&S’ ability to run a large-scale retail grocery business that can successfully compete against the proposed merged business,” the judge noted.
Finally, Kroger and Albertsons’ main argument in favor of their proposed merger was that it would create “cost-saving efficiencies that will be passed on to customers.” The retailers promised to make a $1 billion investment to lower prices should the merger go through. But “efficiencies cannot be a defense,” the judge stated. And the promise to lower prices is nice, but “courts ordinarily must be skeptical of unenforceable promises… because promises can be broken.”
The retailers have not yet issued a statement reacting to the ruling or announcing their next steps. Kroger and Albertsons are free to continue to pursue their merger, as the temporary injunction only blocks it for now. But it’s a big win for regulators – and Kroger and Albertsons’ response will determine whether this is a temporary setback to what could be a grocery game-changer, or whether it’s game over.
Image sources: Kroger/Albertsons
Wonderful news. Less competition from this merger would’ve raised prices where I live and in many communities across the country. The federal judge in Oregon and the state judge in Washington made the right calls. Any serious deal seeker could see how this would mean less deals from less sales since they’d be fewer competitors in those markets.
Trump will right this come January. Your Democrat Governor and state politicians are the problem. Vote smarter next time.
There is no problem. I’m happy with the decision. It had nothing to do with the next president. There is nothing for him to ‘right’. The deal has been terminated by Albertsons and is over.
Government officials need to stay away from free enterprise and the capitalist system, but they never will. This is a sad day for the industry and, more importantly, for the millions of shoppers who would have benefited from the better value proposition.
Trump will fix it!