Judge puts merger deal on hold for America’s 2 largest grocery store chains

Two of America’s largest grocery chains have stopped the process of merging together, for now.

Kroger, which operates 2,721 grocery stores in 35 states, announced in October that it would purchase Albertsons, with 2,253 stores, with a $25 billion deal.

Now, the merger has been halted after King County, Washington, Superior Court Commissioner Henry Judson placed a temporary restraining order on the sale which was scheduled to happen on Monday.

The ruling was handed down after an hour-long hearing earlier this week. Washington Attorney General Bob Ferguson filed an anti-trust lawsuit to stop the merger which brought the case to court.

New Jersey is one of 13 states where Kroger doesn’t have a presence but Kings Food Markets and Acme Markets operate under Albertsons’ umbrella.

Members of Congress sent a letter to the CEO of Cerberus Capital Management, urging the private equity firm to pause the payment of the $4 billion Albertsons dividend scheduled for Monday and to provide answers about the impact of the dividend on the Kroger-Albertsons merger.

In the letter, United States Senators Elizabeth Warren, Ron Wyden, and Bernie Sanders, along with Representatives Jan Schakowsky, Katie Porter and Chuy García criticized Cerberus and other big shareholders that are cashing in the billion-dollar dividend from Albertsons and extracting massive profits at the expense of the overall health of the company – even as the merger threatens consumers, workers, and competition.

A federal judge ordered Albertsons to temporarily halt payment of the special dividend while the proposed merger with Kroger is under regulatory review.

“The ‘special cash dividend’ included in the proposed Kroger-Albertsons acquisition is particularly troublesome because of the adverse impact on long-term competition in this industry. Rather than using these funds to invest in workers, improve stores, reduce prices, or simply strengthen Albertsons’ cash reserve, the $4 billion will go directly to Cerberus and other shareholders – a hit that risks ‘bankrupt(ing) the debt-ridden supermarket chain,” wrote the lawmakers.

Kroger and Albertsons last month announced a massive merger agreement under which Kroger would acquire all outstanding shares of Albertsons’ stock at a total value of $24.6 billion. As part of the agreement, Albertsons and Kroger announced a “special cash dividend of up to $4 billion to its shareholders,” payable on November 7, 2022, long before the deal can be finalized.

In its most recent filing, Albertsons reported having only $3.2 billion in liquid capital, combined with $4.7 billion in debt held by the company, raising concerns that if the dividend was paid out, and the merger was not approved, the companies would seek a “failing firm” defense. “During the FTC’s review, it would be outrageous for Kroger and Albertsons to claim the ‘failing firm’ defense in this matter and argue that, after sucking $4 billion in capital out of Albertsons, the acquisition must proceed because Albertsons can no longer operate independently. We have raised this concern with the FTC, and we hope you would avoid any such bad-faith argument,” continued the lawmakers.

The $4 billion dividend was announced as part of the definitive merger agreement negotiated between Kroger and Albertsons, raising concerns about “gun-jumping,” which occurs when parties to a merger collaborate on competitive decisions prior to the consummation of the merger. The lawmakers reiterated that gun-jumping is a violation of Section 1 of the Sherman Act and indicated that the FTC should consider this behavior when it reviews the merger.

The lawmakers note that in addition to Cerberus receiving a massive windfall, workers and consumers could lose out if this merger proceeds. Both Albertsons and Kroger have previously faced extensive allegations of worker abuses. The companies have also faced allegations of price-gouging during the pandemic and continued to post “eye-popping” profits during 2021 even as they raised prices on consumers and bragged about their abilities to pass on the impact of inflation.

Last week, Warren, Sanders and Schakowsky sent a letter to FTC Chair Lina Khan urging the agency to oppose the merger. .

In the letter, the lawmakers highlight how Kroger and Albertsons have price gouged consumers during the pandemic and how this merger could increase monopoly power, buyer power, and hurt both companies’ workers and consumers.

The lawmakers also raised their concerns about the $4 billion dividend payout directly in the letter to the FTC.

The Kroger Company is the United States’ largest supermarket operator by revenue and fifth-largest general retailer.