The biggest grocery store merger in U.S. history was dealt a double blow on Tuesday: Within less than two hours, both a federal and a state judge moved to block the deal.
Judge Adrienne Nelson of U.S. District Court in Oregon sided with the Federal Trade Commission in its lawsuit seeking to halt Kroger’s $24.6 billion acquisition of Albertsons, a rival grocery chain. It was a win for federal regulators who have argued that the merger would risk reducing competition at the expense of consumers and workers.
The grocery chains “engage in substantial head-to-head competition and the proposed merger would remove that competition,” Judge Nelson said in her decision, calling the merger “presumptively unlawful.”
The merger would directly affect Juneau since it is home to one of the 579 Safeway stores (owned by Albertsons) that would be sold to another company, with the Fred Meyer store (owned by Kroger) remaining part of the new company.
Nelson’s preliminary injunction placed the merger on shaky ground as it heads to the final step to determine the deal’s fate: the F.T.C.’s internal administrative process. About an hour after the federal ruling, a judge in Washington State also blocked the deal on the grounds that it could substantially lessen competition. Another state challenge in Colorado is still pending.
Kroger and Albertsons could choose to abandon their merger because of the preliminary injunction, but the order at the federal level “in no way forces them to do so,” Judge Nelson added, stressing that the companies could still pursue the deal if it is deemed lawful in the F.T.C.’s administrative proceedings. “An injunction simply pauses the merger,” she said.
The ruling in the Washington State case, however, added to the hurdles facing the companies, which have argued that they need to merge in order to compete with behemoths like Walmart and Amazon.
The combination of the country’s two largest supermarket chains would create a $200 billion company, with about 5,000 stores in 48 states and the District of Columbia. The F.T.C. filed an antitrust lawsuit in federal court to block the merger, about a year and a half after it was announced. The agency was joined by the attorneys general of eight states, including California and Illinois, and the District of Columbia. It was part of a regulatory push under the Biden administration to rein in corporate consolidation in an array of industries, including airlines, Big Tech, book publishing and pharmaceuticals.
Lina Khan, the chair of the F.T.C., has elicited particularly intense backlash from the business world for her efforts to scale back the power of some of America’s biggest corporations. (On Tuesday evening, President-elect Donald J. Trump named Andrew Ferguson as the next chair of the F.T.C., succeeding Ms. Khan.)
Judge Nelson’s decision “protects competition in the grocery market, which will prevent prices from rising even more,” Douglas Farrar, a spokesman for the F.T.C., said in a statement. “This statement win makes it clear that strong, reality-based antitrust enforcement delivers real results for consumers, workers and small businesses.”
Kroger is “currently reviewing its options,” a spokeswoman, Erin Rolfes, said in a statement, adding that the company is “disappointed” by the two decisions to halt the deal. Albertsons is also reviewing the court opinion and evaluating its next steps, Tom Moriarty, the company’s general counsel, said in a statement.
The grocery industry has experienced waves of consolidation since the 1990s. Now just four companies — Walmart, Kroger, Costco and Albertsons — account for about half of all grocery sales. Consolidating Kroger and Albertsons would reduce head-to-head competition in over 1,000 communities, resulting in higher prices and lower quality, the F.T.C. argued in its post-hearing brief.
When asked about the lawsuits on an earnings call last week, Rodney McMullen, Kroger’s chief executive, told investors that the company was “super excited about Albertsons and the potential,” but that if the deal were to be blocked, “we’ll continue to go on.”
“I don’t know that we would be out there trying to find what’s the next Albertsons,” Mr. McMullen said. “We’ve always made sure that we don’t need to do mergers to make our business successful.”
The companies defended the merger before Judge Nelson, arguing that it would lead to lower prices and that the combined company could better compete with bigger rivals like Walmart, Amazon and Costco. Vivek Sankaran, the chief executive of Albertsons, said the chain could be forced to close stores and lay off workers if its merger with Kroger was blocked.
“We hope to chip away at the bigger target, which is Walmart,” Tony Silva, vice president of strategic initiatives at Albertsons, testified in court.
Walmart alone accounts for around 22 percent of U.S. grocery sales. Combined, Kroger and Albertsons would account for about 13 percent.
The F.T.C. lawyers countered that the chains’ promises to lower prices would not be legally enforceable, and in some markets, less competition would give Kroger leverage to raise prices on millions of shoppers.
“Circumstances change and executives have a fiduciary duty not to shoppers, but to shareholders,” Susan Musser, a lawyer for the F.T.C., said during closing statements.
Debates over how the deal might affect the combined companies’ roughly 700,000 employees, the majority of whom are unionized, were also aired in the courtroom. The F.T.C. argued that the merger would reduce the bargaining power of unions, as they would no longer be able to leverage competition between the grocery giants to secure better pay and benefits for their members.
In court testimony, however, Kroger’s head of labor relations countered that unions would still have a range of tools to employ at the bargaining table after the merger.
The preliminary injunction issued by Judge Nelson would typically spell the end of the merger, said Rebecca Haw Allensworth, a law professor at Vanderbilt University who teaches antitrust. But a series of additional lawsuits, combined with Kroger’s dogged efforts to push for the deal, have cast uncertainty over the companies’ and the F.T.C.’s next steps.
The F.T.C. is preparing to move forward with a separate internal proceeding seeking to block the deal. But in August, Kroger sued the F.T.C., calling its administrative proceedings unconstitutional in an attempt to thwart the in-house tribunal.
“Big picture, a preliminary injunction means the deal is dead,” Ms. Allensworth said. “It’s just that there’s all these new moving parts that make it harder to predict what will happen.”
Kroger and Albertsons have been pushing for the merger for years, spending hundreds of millions of dollars in the process. If the companies keep fighting to merge despite the legal setbacks, shareholders might eventually question whether all the expenses are worthwhile, said Christine Bartholomew, a professor at the University at Buffalo School of Law who teaches antitrust.
“While all the procedural rigmarole continues to unfold, there’s this whole marketplace component as well,” Ms. Bartholomew said. “I’m curious at what point shareholders will say, ‘enough is enough.’”
Kroger shares rose about 5 percent on Tuesday, while Albertsons fell more than 2 percent.
• This article originally appeared in The New York Times.
