Kroger and Albertsons hope to merge but must face a skeptical US government in court first (2024)

The largest proposed grocery store merger in U.S. history is going to court.

On one side are supermarket chains Kroger and Albertsons, which say theirplanned mergerwill help them compete against rivals like Costco. On the other side are antitrust regulators from the Federal Trade Commission, who say the merger wouldeliminate competitionand raise grocery prices in a time of already highfood price inflation.

Starting Monday, a federal district court judge in Portland, Oregon, will consider both sides and decide whether to grant the FTC’s request for a preliminary injunction. An injunction would delay the merger whilethe FTCconducts an in-house case against the deal before an administrative law judge.

Kroger, based in Cincinnati, Ohio, operates 2,800 stores in 35 states, including brands likeRalphs, Smith’s and Harris Teeter.Albertsons, based in Boise, Idaho, operates 2,273 stores in 34 states, including brands like Safeway, Jewel Osco and Shaw’s. Together, the companies employ around 710,000 people.

Here’s what to know ahead of the hearing, which is expected to last until Sept. 13.

Kroger and Albertsons – two of the largest grocery chains in the U.S. – announced in October 2022 that they planned to merge. The companies say the $24.6 billion deal would hold down prices by giving them more leveragewith suppliersand allowing them to combine their store brands. They say a merger also would help them compete with big rivalslike Walmart, which now controls around 22% of U.S. grocery sales. Combined, Kroger and Albertsons would control around 13%.

Antitrust regulators say the proposed merger wouldeliminate competition, leading to higher prices, poorer quality and lower wages and benefitsfor workers. In February, the FTC issued a complaint seeking to block the merger before an administrative judge at the FTC. At the same time, the FTC filed the lawsuit in federal court in Oregon seeking the preliminary injunction. The attorneys general of Arizona, California, the District of Columbia, Illinois, Maryland, Nevada, New Mexico, Oregon and Wyoming all joined the federal lawsuit.

They say no. If the merger is approved, Kroger and Albertsons haveagreed to sell 579 storesin places where their stores overlap. The buyer would be C&S Wholesale Grocers, a New Hampshire-based supplier to independent supermarkets that also owns the Grand Union and Piggly Wiggly store brands. Kroger and Albertsonsinitially plannedto divest 413 stores, but the FTC said that plan would not have allowed C&S to be a robust competitor. Kroger and Albertsons agreed to divest additional stores in April. Washington has the most stores that would be divested, with 124, followed by Colorado with 91 and California with 63.

If the preliminary injunction is approved, Kroger and Albertsons would likely appeal to a higher court, said Mike Keeley, a partner and antitrust chair at Axinn, Veltrop & Harkrider, a Washington law firm. The case could then move through the FTC’s own judicial system, but since that can take a year or more, companies often abandon a deal before going through the process, Keeley said. Kroger sued the FTC this month, alleging the agency's internal proceedings are unconstitutional and saying it wants the merger's merits decided in federal court. In that case, filed in Ohio, Kroger cited arecent Supreme Court rulingthat limited the power of the Securities and Exchange Commission to try some civil fraud complaints within the agency instead of in court.

The FTC would likely appeal the ruling, but Keeley said it's rare for an appeals court to reverse a lower court's ruling on a merger, so the FTC might decide to drop the challenge. The case could still proceed through the FTC's administrative process. It's unclear what impact the presidential election could have on the case. The Biden administration has been particularly aggressive in challenging mergers that it considered anti-competitive, but lawmakers from both partiesexpressed skepticismabout the merger in a 2022 hearing.

ColoradoandWashingtonhave separately sued to blockthe mergerin state courts. That's an unusual situation; normally states are co-plaintiffs in a federal lawsuit. But both states believe they have a lot at stake. Colorado has more than 200 Kroger and Albertsons stores, while Washington has more than 300. Keeley said both states could seek their own injunctions from a different court if the FTC loses, but it would be surprising for another court to block the merger if Kroger and Albertsons are successful in the federal case.