FTC And Kroger Offer Dueling Narratives In Court Battle Over $25B Merger

The first salvos were fired in the court battle between grocery giants Kroger and Albertsons and the Federal Trade Commission over a proposed merger, with both sides predicting dire outcomes if the other prevails.

Among the potential consequences, according to attorneys for Albertsons, are potential store closures as a result of the company's inability to scale without Kroger's partnership.

Opening arguments kicked off Monday in a Portland, Oregon, court after the FTC sued and then was countersued for its attempt to block Kroger’s $25B acquisition of rival Albertsons in a merger that would create a single grocer with around 5,000 stores. 

The two sides paint a starkly different picture of what a merger — or the lack of one — would mean for consumers.

“There are limits to what we can accomplish without the scale,” Albertsons attorney Enu Mainigi said during opening arguments Monday, according to Seeking Alpha. “The standalone strategy for Albertsons may include layoffs, closing stores and/or exiting certain markets.”

FTC Chief Trial Counsel Susan Musser countered that the deal “would eliminate the competition that shoppers and workers depend on in one fell swoop,” The New York Times reported.

The high-profile case, which is expected to last three weeks, could become a presidential campaign talking point, as Vice President Kamala Harris and former President Donald Trump make the rising cost of food and alleged price-gouging by manufacturers a common theme in speeches. 

Attorneys for Kroger and Albertsons argued that the merger, which would be the largest supermarket merger in U.S. history, would allow the grocers to better negotiate prices with suppliers and more effectively compete against retailers like Costco, Amazon and Walmart.

The FTC reiterated the argument it has made publicly that the new combined company would control around 36% of U.S. grocery sales, giving it undue pricing power and the ability to keep workers’ wages deflated.

Kroger disputed the FTC’s assertions in an emailed statement from a spokesperson arguing the merger would help save jobs and hold e-commerce giants accountable.

The merger would “help customers fight inflation and [offer] more choices for more customers in more communities,” along with lifting wages and increasing employee benefits, the spokesperson said. “If the merger is blocked, the non-union retailers like Walmart and Amazon will become even more powerful and unaccountable.”

Judge Adrienne Nelson of the U.S. District Court for the District of Oregon is overseeing the preliminary injunction hearing. If Nelson sides with the FTC, the merger would be blocked pending a separate internal review of the deal by the FTC.

The judge's ruling will likely influence the FTC’s decision-making process, according to the Times, which reported the hearings were being treated as a dry run of a trial of the merger on its merits.

Kroger’s countersuit, filed earlier this month, challenges the FTC internal review process as unconstitutional and seeks to prevent a panel at the agency from deciding the fate of the merger.

Attorneys general from eight states and Washington, D.C., joined the FTC in its suit. President Joe Biden has made antitrust efforts and fighting corporate consolidation a mainstay of his administration's policy, with aggressive efforts against Google, Amazon and others led by FTC Chair Lina Khan.

The Harris campaign drew cheers and jeers earlier this month when it rolled out a campaign pledge to stop supermarkets from price-gouging. Trump held a press conference earlier this month at his Bedminster, New Jersey, golf course in front of a selection of groceries lambasting rising costs. 

The two grocery chains have tried to assuage the government’s concerns and push the merger through. 

Kroger and Albertsons said in April that they would divest 579 locations to encourage competition if the merger were approved, up from a prior agreement to sell 413 stores. 

The stores would be sold to C&S Wholesale, the operator of chains like Piggly Wiggly and Grand Union, which partnered with SoftBank to raise capital for what is estimated to be a $2.9B sale.

“The C&S divestiture plan builds on our merger commitments by ensuring zero stores will close as a result of the merger, all frontline associates will remain employed, all existing collective bargaining agreements will continue, and associates will continue to receive industry-leading benefits alongside bargained-for wages,” the Kroger spokesperson said. 

UPDATE, AUG 27, 5:30  P.M. ET: This story has been updated to include statements from a Kroger spokesperson.