Replay | Grocery Flash Call | Kroger-Albertsons Merger Review

Kroger's offer for Albertsons would combine numerous supermarket banners, nearly 5,000 stores, and result in 15-16% of the U.S. grocery market share.

Anti-trust regulators have prevented other mergers in the food sector including Sysco and U.S. Food’s merger in 2015. Walgreens was unable to acquire Rite Aid in 2015 after regulators said it would be anti-competitive. Three years later Albertsons was prevented from acquiring Rite Aid. In 2020, King Cullen and Stop & Shop had to call off their merger after two years of talks with regulators. Regulators did not consider increased openings from hard discounters like Lidl as competition.

Our call analyzed the odds of FTC approval, reviewed the proposed SpinCo, discussed the competitive implications across food retail, discussed the role that politics and union support could provide, and provided an early preview of what the combined company could earn.  We also outlined the importance of which stores to divest and the viability of SpinCo as critical dealbreakers.

We put high odds on the following:

• The DOJ and FTC will be very sensitive to any corporate merger that may lead to higher food prices for consumers. 
• Regulators are not likely to consider many food retailers outside of traditional supermarkets as competitors including warehouse clubs, online-only chains, and dollar stores.
• The federal government will demand significant divestments of stores in markets in which both Kroger and Albertsons currently compete including Chicago, Los Angeles, Washington D.C., Arizona, Oregon, Texas, Colorado, etc.
• The merger will have to receive the blessing of numerous unions which will demand increased compensation, benefits, and payments to pensions. 
• The federal government is likely to contest the merger in such a manner that it will ultimately not be completed in its current form.
• With elevated food inflation a merger of grocers is simply going to attract an aggressive review by anti-trust regulators. It could also make a convenient target for food inflation by politicians who have already blamed Big Meat and Putin for higher prices. 

Paul Glenchur, Hedgeye's Senior Policy analyst, focused on regulatory and competition policy issues involving the Justice Department and the FTC, joined us on the call and added his legal expertise to the analysis. Paul is a member of the American Bar Association Antitrust Section and the Supreme Court Bar. Paul served as an attorney at the FCC and in private practice. In addition, he served as a judicial law clerk in the U.S. Court of Appeals for the Ninth Circuit. Paul provided his thoughts on the relevant cases, what to expect over the next year+, and what are the next steps to look for.