Kroger and Albertsons Grocery Megamerger Stopped by Federal Court: NPR

A shopper pushes a shopping cart through a Kroger supermarket in Newport, Kentucky.

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Al Behrman/AP/AP

A federal judge in Oregon temporarily blocked the merger of grocery giants Kroger and Albertsons, ruling in favor of federal regulators on Tuesday.

The ruling makes it increasingly unlikely that the deal, worth $24.6 billionwill succeed at some point. Kroger operates many well-known grocery stores, including Ralphs, Harris Teeter, Fred Meyer and King Soopers. Albertsons owns Safeway and Vons.

Because of the litigation, the largest food merger in U.S. history has been pending for more than two years. A judgment in a separate legal challenge by the Attorney General of Washington was expected later on Tuesday. A third legal dispute is ongoing Coloradoand the companies will now weigh up whether they want to pursue the merger or abandon it.

The Federal Trade Commission, along with several states had asked the federal district court in Oregon to stop Kroger’s purchase of Albertsons. The government argued that the resulting behemoth would lead to higher food prices and less choice for shoppers and workers. In many markets, the two chains are the biggest competitors.

Kroger and Albertsons, in turn, argued that together they actually had more power to lower prices and compete with other major retailers that sell groceries, including Walmart, Costco and Amazon.

U.S. District Judge Adrienne Nelson has now ruled that the merger must be halted while it undergoes administrative review within the FTC – a process that Kroger is separately challenging in court as unconstitutional.

“Both defendants hinted at a future in which they would be unable to compete with the ever-growing Walmart, Amazon or Costco,” Nelson wrote in Tuesday’s order. “However, the overarching objectives of antitrust law are not achieved by allowing an otherwise unlawful merger to enable companies to compete with an industry giant.”

Kroger and Albertsons have a combined total of nearly 5,000 stores and employ approximately 720,000 people in 48 states. They overlap, particularly in western federal states.

The case hinges on how Americans buy food

During the three week trial in a Portland courtroomThe FTC and the companies expressed different views on the grocery market.

Kroger and Albertsons described their merger as vital to their survival. They argued that the FTC’s view of competition – which focused on the options a shopper might have in his or her neighborhood – was outdated in the wake of big business and the proliferation of dollar stores.

Kroger officials testified that they typically compared their prices to Walmart’s, not Albertsons’, but had difficulty keeping up given Walmart’s ability to negotiate better deals with suppliers thanks to its size. Walmart is the largest grocery seller in the US, followed by Kroger and Costco.

However, the FTC argued that someone shopping at Walmart, Costco, CVS or even Trader Joe’s is likely still relying on their neighborhood supermarket. Government lawyers said enough people were concerned about the merger that the agency received an unprecedented 100,000 public comments.

Federal officials also shared union complaints.

Kroger and Albertsons are the rare unionized stores in retail. Companies argue that this is actually a reason why they should be allowed to band together to face larger, non-union competitors. But the FTC says a merger would give the companies much more influence in contract negotiations, leading to lower wages and poorer benefits.

Questions about a plan to sell some businesses

The judge separately considered Kroger and Albertsons’ plan to sell hundreds of their stores to one company called C&S Wholesale Grocers as a condition of their merger to appease regulators.

The idea is to create a new grocery competitor in markets where Kroger and Albertsons currently overlap and a merger would therefore eliminate competition. C&S, a food supplier, had agreed to purchase 579 stores in 18 states and Washington, DC

However, the FTC argued that C&S would have difficulty competing. The company currently operates only 23 stores, mostly under the Piggly Wiggly brand, without much national recognition. Government lawyers shared internal memos in which C&S executives raised concerns about the quality of the businesses they would acquire.

Kroger and C&S executives presented C&S as an experienced grocery company that could hit the ground running.

The last time the government approved a grocery merger based on store divestitures was in 2015. Albertsons bought Safeway. It sold 168 stores and then bought back 33 of them at a bargain price because one of the buyers filed for bankruptcy protection within months of the deal.