The Federal Trade Commission (FTC) could be leaning towards challenging the Kroger, Albertsons merger in court, and representatives on both sides are scheduled to meet this week to talk about the deal.
According to reporting from Axios, two sources claim the FTC is not satisfied with the $24.6 billion deal, even despite Kroger and Albertsons’ recent divestiture of over 400 stores to C&S Wholesale Grocers.
One of those sources, former FTC policy director David Balto, who has been involved in several grocery merger deals with the FTC, said the deal with C&S was not enough to encourage the FTC to approve the merger, and that a similar divestiture deal with a closer competitor like Ahold Delhaize would have made a stronger impression.
In an exclusive interview with Supermarket News, Balto said the FTC will likely take Kroger and Albertsons to court over the C&S deal.
“I think it’s highly unlikely the FTC would accept this divestiture, and I think that means that they’ll go to court and litigate,” Balto said.
“You’re looking at something that’s going to go to court, and I think Kroger has known all along that’s where it was going to go,” he added.
Balto said that the C&S divestiture assumes that the parties involved will share a trademark and that the FTC has not accepted trademark sharing in past deals because it limits effective marketing of the brands involved.
“So there would be Albertsons stores owned by separate entities in the West Coast and elsewhere,” said Balto. “For the FTC that’s a non-starter.”
Furthermore, Balto believes the court will rule in favor of the FTC, a move that would force Kroger and Albertsons to go back to the drawing table in terms of getting their merger deal approved.
An unnamed source told Axios that reps for Kroger and Albertsons plan to meet with the FTC this week to provide assurances on the deal and that the number of stores being divested could be increased. A source close to the matter, however, told Supermarket News that that meeting was more of a procedural one around the minutiae of the potential merger deal.
Former FTC policy director David Balto said he believes the merger is facing “a hurricane storm” based on the following points:
- Agencies are much more willing to litigate and have much less confidence in the cut-and-paste approach they’ve taken in the past to permit otherwise anticompetitive mergers to occur with slight divestitures. “They believe that has been generally unsuccessful and has not completely restored competition”
- Over the past few years, supermarkets have had a substantial increase in profits and have increased prices. “And the FTC is first and foremost concerned about being able to protect consumers so that competition works and they get the lowest prices”
- The agencies are much less solicitous of buying power than they have been in the past. “In the past, they might just generally say bigger is better. You’re going to secure greater buying power. That’s a good thing. But the agencies I think are much more skeptical about the role of the benefits of buyer power when it comes to consumers.”
During a recent public forum around the Kroger, Albertsons merger in Las Vegas, FTC Chair Lina Khan said she had some reservations about the deal, and used the Albertsons, Safeway merger in 2015 as an example. To satisfy antitrust regulators, 146 Safeway and Albertsons stores were sold to Haggen, which then filed for bankruptcy a few months later.
“If there’s a merger that is presenting a lot of risk of reducing competition, may even create a monopoly…we need to weigh those risks, and especially given that some of these remedies in the past have failed,” Khan told CBS Las Vegas affiliate KLAS.
“Historically, enforcers sometimes have allowed mergers to go through and accept those promises and commitments,” Khan continued. “But historically, it’s been very difficult to even enforce them.”
An SN source said the statement from Khan was referring to mergers in general, but Balto said the FTC chair was talking specifically about the Kroger, Albertson merger.
Albertsons declined to comment on this story, and Kroger did not respond to a request for comment at the time of publishing.