Kroger announced Friday that it plans to buy Albertsons in a nearly $25 billion deal that could transform U.S. retailing and affect the way millions of shoppers buy their groceries.
The deal, expected to close in 2024, would combine two of the country’s largest supermarket chains and create one of the largest private employers. The two companies together have 710,000 employees — most are unionized in an industry with low union rates — nearly 5,000 stores and more than $200 billion in sales.
The retail industry has been consolidated in recent years and a merger would give the companies more scale to fend off competition from Amazon, Walmart and other retail giants. Traditional grocery stores are under pressure from these companies and others — discount chains like Dollar General and Aldi, department stores like Costco, and online grocers.
The merger “accelerates our position as a more attractive alternative to larger and non-union competitors,” Kroger chief executive Rodney McMullen said in a statement Friday.
If completed, the deal would mark one of the largest mergers in U.S. retail history — dwarfing Amazon’s 2017 acquisition of Whole Foods for $13.7 billion. The company would become the third largest retail chain in America by revenue. Its combined $1.4 trillion grocery market share would be 13.5%, according to Morgan Stanley, making it the second largest grocer behind Walmart’s 15.5% share.
The move also comes as companies battle higher costs and food inflation hits its highest level in decades. Prices in supermarkets continued to rise in the past month. The food at home index, a measure of supermarket prices, rose by 0.7% in September compared to the previous month and by 13% in the past year.
Kroger said it would use half a billion dollars in cost savings from the merger to invest in lower prices.
“The combined company could be more productive and profitable than either of them individually,” Joseph Feldman, a retail analyst with Telsey Advisory Group, said in a note to customers Friday. Expanding into new regions, growing new businesses and combining technology and supply chains could fuel growth, he said.
Kroger will buy Albertsons for $34.10 a share – a premium of about 30% above the supermarket chain’s average share price over the course of the past month. Shares of Kroger fell 2% in pre-market trading, while Albertsons rose more than 11%.
The two companies operate dozens of supermarket chains. Kroger operates Ralphs, Harris Teeter, Dillons, Fred Meyer and others, while Albertsons owns Safeway and Vons. The companies said they will divest nearly 400 stores to form a new rival in a bid to gain antitrust approval.
But analysts say it will be a major hurdle to pass the antitrust audit.
“A deal of this magnitude that has a direct impact on consumers would be subject to significant scrutiny by regulators and will take a long time to be approved,” Feldman said.
Consumer watchdogs, unions and Democrats have already spoken out strongly against the deal.
sen. Bernie Sanders called it a… “absolute disaster” and called on the Biden administration to reject the deal. The American Economic Liberties Project, an anti-monopoly organization, said the “merger would be catastrophic for market competition, small businesses and most importantly — consumer wallets.”
FTC chairman Lina Khan is a critic of corporate consolidation and the regulator has blocked major store mergers in the past, including Staples’ attempts to combine with Office Depot.
The FTC is currently investigating anti-competitive practices in the food industry and last year requested information from Kroger and others about the causes of empty shelves and rising prices in the United States.
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