By David Shepardson and Chris Sanders
WASHINGTON (Reuters) -The U.S. Federal Trade Commission and eight states said on Monday they are suing to block supermarket chain Kroger (NYSE:KR)\'s $24.6 billion deal to buy smaller rival Albertsons (NYSE:ACI), saying it would boost grocery prices for millions of Americans.
The deal, which would create a grocery empire with more than 4,000 stores, has drawn tough scrutiny from lawmakers and consumer groups worried about higher grocery prices, job losses, store closures and diminishing choice for consumers.
U.S. food prices have risen by 25% over the last four years, and while food inflation is showing signs of cooling off in 2024, grocery bills have become a growing concern for shoppers.
The deal would strengthen Kroger\'s position as the second largest player in the US grocery market behind Walmart (NYSE:WMT).
The FTC\'s lawsuit comes at a time when the Biden administration has pressed for lower grocery prices and pushed back against big-ticket mergers that risk price hikes, affecting consumers in areas ranging from medicines to airline tickets.
The White House, after the FTC suit was announced, said President Joe Biden believes large corporations must be checked by healthy competition.
Shares of Kroger fell 2%. Albertsons stock rose 0.6%. The deal spread, a measure of investor confidence in the merger, implies less than 40% chance of the deal being completed.
While the FTC charged the deal will eliminate \"fierce competition between Kroger and Albertsons,\" Kroger defended their business model, saying it has reduced prices every year since 2003 and would be applied to the merged company.
The FTC\'s legal efforts \"only strengthens larger, non-unionized retailers like Walmart WMT.N>, Costco (NASDAQ:COST) COST.O> and Amazon.com (NASDAQ:AMZN) by allowing them to further increase their overwhelming and growing dominance of the grocery industry,\" Kroger said in a statement.
An Albertsons spokesperson added, \"We are disappointed that the FTC continues to use the same outdated view of the U.S. grocery industry it used 20 years ago, and we look forward to presenting our arguments in Court.\"
But the FTC sees the situation differently, noting the \"supermarket mega merger comes as American consumers have seen the cost of groceries rise steadily over the past few years,\" and warning the deal would further exacerbate \"the financial strain consumers across the country face today,\" said Henry Liu, Director of the FTC’s Bureau of Competition.
California Attorney General Rob Bonta has also raised concerns over access to pharmacies and fresh groceries in rural areas and small towns.
Arizona, California, the District of Columbia, Illinois, Maryland, Nevada, New Mexico, Oregon and Wyoming are joining the commission’s federal lawsuit.
The FTC warned the merger would hurt the grocery store unions because the combined company \"would have more leverage to impose subpar terms on union grocery workers that slow improvements to wages, worsen benefits, and potentially degrade working conditions.\"
The decision comes after two U.S. states - Colorado and Washington - sued to block the merger, citing similar concerns.
The FTC asked a U.S. District Court in Oregon to halt the merger pending a full examination of the proposed transaction in an administrative proceeding it filed Monday before an in-house administrative judge. The two complaint process is similar to other major FTC antitrust challenges including Microsoft (NASDAQ:MSFT) Activision. In practice, if an injunction is issued and upheld, the parties often agree to abandon their deal.
The case was filed in federal court in Oregon and assigned to Judge Adrienne Nelson, a former Oregon Supreme Court justice appointed by President Biden and confirmed by the Senate in 2023.
SELLING 413 STORES
Kroger, the biggest grocer in the U.S. by revenue, has proposed to divest 413 stores and eight distribution centers to C&S Wholesale Grocers, and said it may need to shed an additional 237 stores to gain regulatory approval. The FTC called that proposal inadequate.
Antitrust legal scholar Christine Bartholomew said a key question in the FTC’s case will focus on whether the proposed deal poses a potential risk to competition. Kroger and Albertsons were likely to spotlight the “potential gains of the merger and the curative value of the divestiture,” she said.
“But such claims will need actual backing,” said Bartholomew, who teaches at University of Buffalo’s law school. Any assertion from the two companies that the merger will create greater efficiency, she added, “doesn\'t save a merger. The gains must offset any potential anticompetitive harm.”
The deal was also opposed by at least six U.S. lawmakers, including Senators Elizabeth Warren and Bernie Sanders, who have written to the FTC highlighting the impact on consumers and suppliers from such a consolidation in the grocery industry.
The merger, first announced in October 2022, also faced resistance from the United Food and Commercial Workers International Union, which represents more than 1 million workers in the grocery and other essential industries in North America, and voted to oppose the deal in May last year.