Kroger’s costly effort to buy Albertsons fell apart Dec. 10 when not one but two judges blocked the grocery merger. One day later, Albertsons announced it was backing out of the $24.6 billion sale agreement and filed suit against Kroger, blaming its former fiancé for the merger’s failure to win in court.
The killing blow was delivered by Portland federal district court judge Adrienne Nelson. Based on evidence introduced in a hearing that ran from Aug. 26 to Sept. 17, Nelson agreed that the Federal Trade Commission (FTC) had a strong case that the merger would violate federal anti-monopoly laws. Nelson ordered the merger halted until a full trial could take place in front of an administrative law judge in Washington, D.C.
Several hours later, a ruling by King County Superior Court Judge Marshall Ferguson in Seattle permanently barred the merger in the state of Washington, in a case filed by state attorney general (and now governor-elect) Bob Ferguson.
A coalition of over 100 labor and community groups celebrated the two rulings with a press statement saying the merger would have been bad for grocery workers — and disastrous for shoppers. Led by United Food and Commercial Workers (UFCW) Locals 7, 324, 400, 770, 1564 and 3000, the Stop the Merger coalition had opposed the merger since it was first announced in October 2022 and helped push the attorneys general of Washington and Colorado to file suit blocking it under state-level anti-monopoly laws. A decision in the Colorado lawsuit was still pending when the deal fell apart.
The two companies reportedly spent over $1 billion on lawyers and consultants to pursue the merger, according to securities filings. But it was obvious to most observers, including Wall Street investors, that the merger was going to run afoul of laws meant to prevent anti-competitive monopolies. Kroger was supposed to buy all Albertsons stock at $27.25 a share if the merger went through, but the stock never got above $24 in the last two years.
It would have been the largest grocery merger in U.S. history, combining the largest and second largest grocery chains. Kroger, the largest, employs 430,000 workers in 35 states (65% of them union), with over 2,700 stores divided among more than 20 “banners,” including the Northwest chains Fred Meyer and QFC. Albertsons, the second largest, had 285,000 workers in 34 states (70% of them union), with 2,269 stores among another 20 banners, including Safeway, Albertsons, and Haggen. The two companies combined have about 720 union contracts, primarily with UFCW but also with the Teamsters and Bakers unions.
The plain language of anti-monopoly statutes was good enough for Judge Nelson. The Clayton Antitrust Act of 1914 prohibits any merger or acquisition where “the effect of such acquisition may be substantially to lessen competition, or to tend to create a monopoly,” Nelson wrote in her decision.
Over 15 days of testimony and argument, the FTC presented piles of evidence that Kroger and Albertsons are fierce competitors in local grocery markets all over the country. Kroger and Albertsons spent much time arguing that they’re small fish in a big pond that includes formidable competitors like Walmart, Target, Amazon, Whole Foods, Costco, Trader Joe’s, and even Dollar General. But Nelson agreed with the FTC that they’re still the dominant players in a well-defined market of full-service supermarkets where consumers can buy all the groceries they need for a week, including meat, fresh produce, baked goods, and popular national brands.
Alongside arguments that the merger would lead to higher prices, the FTC also made a case that it would result in lower wages for grocery workers. That’s because it would reduce competition for labor and weaken unions’ leverage, eliminating their ability to play one company against another in bargaining. Company lawyers countered that there is no “grocery” labor market, just a larger low-skill market: Half the employees Kroger and Albertsons hire are no longer with the company in six months and about 70% are gone within a year. Nelson found that the labor market evidence was plausible but wasn’t strong enough — yet — to block the merger on its own.
To address concerns that the merger would create local monopolies, Kroger and Albertsons proposed to sell off 579 stores across 30 states to C&S Wholesale Grocers, a privately held company headquartered in New Hampshire that currently operates just 25 stores. Nelson didn’t buy it. “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,” Nelson wrote in her decision.
Albertsons’ lawsuit against Kroger blamed their joint failure to win approval on Kroger’s unwillingness to sell off sufficient stores or choose a stronger divestiture buyer than C&S. It asks the court to order Kroger to pay hundreds of millions in its legal and other costs to prepare for the merger, plus the $600 million termination fee. A Kroger spokesperson told the Wall Street Journal that Albertsons repeatedly breached the merger agreement during the deal process and that the suit is an attempt to deflect responsibility.
The FTC called Nelson’s decision to block the merger “a major victory for the American people” in a press statement attributed to Bureau of Competition Director Henry Liu. “This historic win protects millions of Americans across the country from higher prices for essential groceries — from milk, to bread, to eggs — ultimately allowing consumers to keep more money in their pockets …. This is also a victory for thousands of hardworking union employees, protecting their hard-earned paychecks by ensuring Kroger and Albertsons continue to compete for workers through higher wages, better benefits, and improved working conditions.”
ALLIES: The FTC was joined in its lawsuit by the attorneys general of Arizona, California, Illinois, Maryland, Nevada, New Mexico, Oregon, Wyoming, and the District of Columbia, and attorneys general in Washington and Colorado filed their own lawsuits.
