Two of the biggest supermarkets in the United States are merging.
Kroger and Albertsons announced on Friday that they have entered into a definitive agreement under which the two complementary organizations will merge into one to establish a national footprint. Kroger will acquire all of the outstanding shares of Albertsons’ common and preferred stock for $34.10 per share, implying a total enterprise value of around $24.6 billion, including the assumption of about $4.7 billion of Albertsons’ net debt.
Once completed, it would be one of the largest mergers in U.S. retail history – overshadowing Amazon’s acquisition of Whole Foods for $13.7 billion back in 2017.
If the deal pushed through, the merger would change the U.S. retail industry as a whole and impact how millions of Americans buy their groceries. Expected to close in 2024, the deal would create one of the country’s largest private employers.
Kroger and Albertsons have a combined 710,000 workers – most of them unionized in an industry with low union rates – and nearly 5,000 stores. Both companies operate a number of grocery chains. Kroger is the owner of Ralphs, Harris Teeter, Dillons, Fred Meyer, and others, while Albertsons runs Safeway and Vons. The companies said they will spin off about 400 of those stores to form a new rival in an effort to gain antitrust clearance.
Kroger and Albertsons have a combined sales value of $200 billion, so the merger would create one of the largest retail chains in America by sales. According to the financial services company Morgan Stanley, the combined company would have a 13.5%, market share in the $1.4 trillion grocery industry, making it the second largest grocer behind Walmart’s 15.5% share.
In the press release announcing the merger, Kroger said it plans to invest in lowering prices for customers and expects to reinvest approximately half a billion dollars of cost savings from synergies to reduce prices for customers. Moreover, an incremental $1.3 billion will be invested into Albertsons stores to enhance the customer experience. The combined company also expects to invest $1 billion to continue raising associate wages and comprehensive benefits after the deal was closed.
“We are bringing together two purpose-driven organizations to deliver superior value to customers, associates, communities, and shareholders,” said Rodney McMullen, Kroger Chairman and Chief Executive Officer, who will continue serving as Chairman and CEO of the combined company. “Albertsons Cos. brings a complementary footprint and operates in several parts of the country with very few or no Kroger stores. This merger advances our commitment to build a more equitable and sustainable food system by expanding our footprint into new geographies to serve more of America with fresh and affordable food and accelerates our position as a more compelling alternative to larger and non-union competitors.”
According to CNN, analysts expect some store closures if the deal pushes through, noting that these closures will be a big hurdle for the merger to pass antitrust scrutiny.
Joseph Feldman, an analyst at Telsey Advisory Group, commented that “a deal of this size that has a direct impact on consumers would face significant scrutiny from regulators and take a long time period to be approved.”
Who are against the merger?
Consumer watchdogs, unions, and Democrats are not in favor of the deal, with many of them expressing their opposition to the merger. Despite Kroger’s plans to invest in lowering prices for customers, those who are against the deal said the merger would actually raise prices as it would drive out competition. Furthermore, the merger could also kick off a new wave of consolidation among smaller players attempting to survive and compete in the retail industry.
Senator Bernie Sanders called the merger an “absolute disaster” and called on the Biden administration to reject the deal. The anti-monopoly organization American Economic Liberties Project has a similar sentiment, saying the “merger would be disastrous for market competition, small businesses, and especially – consumers’ pockets.”
The current chair of the Federal Trade Commission, Lina Khan, is also a staunch critic of corporate consolidation. Under her leadership, the government agency has blocked large retail mergers, including Staples’ attempts to acquire Office Depot. Looking into anti-competitive practices in the grocery industry, the FTC requested information last year from Kroger and others on the causes of empty shelves and surging prices in the country.