$25 Billion Merger Plans Scratched After Courts Block Deal

What Happened?

Grocery chain Albertsons (ACI) announced plans to sue after calling off its $25 billion merger plans with Kroger (KR), the largest proposed merger in U.S. supermarket history.

The merger was blocked by two judges Tuesday in separate court cases, following a three-week preliminary injunction hearing in Portland, Oregon, and later being issued a permanent injunction barring the merger in Washington.

Judge Marshall Ferguson ultimately concluded the merger would lessen competition in the state and violate Washington’s consumer-protection laws.

Federal judge Adrienne Nelson in Oregon also argued the deal would hurt competition and potentially raise consumer prices.

Kroger’s and Albertsons’ stocks gained momentum after Albertsons announced it would buy back $2 billion worth of shares, leading investors to anticipate the deal would fall through.

The two chains, under the proposed merger agreement from 2022, planned to reportedly sell 579 stores in places that overlapped New Hampshire-based supplier C&S Wholesale Grocers, and compete in 22 states.

Antitrust law partner Jeffrey Oliver told the Associated Press, ‘For the parties, the road gets steeper from here, just given the costs of keeping a deal together and the significant doubts about its viability given today’s opinion.’

Albertsons CEO Vivek Sankaran said in a statement Wednesday, ‘Given the recent federal and state court decisions to block our proposed merger with Kroger, we have made the difficult decision to terminate the merger agreement. We are deeply disappointed in the courts’ decisions.’

Albertsons Companies Inc. is now suing The Kroger Company for alleging a breach of contract by not doing enough to secure regulatory approval for the potential historic agreement.

According to their statement, they're seeking billions of dollars in damages from Kroger to make Albertsons and its shareholders whole.

The company specifies that Albertsons' termination of its deal removes contractual constraints on the ability to look at ‘other strategic opportunities.’

Why it Matters

Although Judge Nelson argued Albertsons and Kroger are ‘distinct from other grocery retailers’, the trend in supermarket struggles suggest that establishments like Walmart and Amazon are direct competitors.

While Walmart, Amazon, and even Costco offer a wider range of goods, supermarkets have reportedly been losing ground in key areas for decades to these juggernaut establishments.

In addition, supermarkets like Kroger and Albertsons employ mostly unionized workforces, compared to non-union establishments like Walmart.

Some analysts still suggest that Kroger, the largest U.S. grocery chain, is in a stronger position than Albertsons because of its size.

But others like Grocery Dive state that the two chains will now have to plot an independent path.

How it Affects You

The rising cost of groceries and proposed import tariffs are something to watch out for.

Food economist David Ortega told Grocery Dive that many of the products U.S. shoppers depend on are not grown in this country.

The pressure on grocery prices due to the higher cost of imported items used by food companies, such as manufacturing equipment, packaging, and fertilizer, is likely to increase costs for shoppers in the end, ultimately affecting the consumer.

That’s the theory anyway. We will have to see if that plays out in reality.