Judge starts hearing on Albertsons merger the government says would raise food costs

The two sides in the fight over Kroger’s and Albertsons’ desire to merge finally got their day in court Monday.

It was actually the first of what is expected to be about three weeks’ worth of days in a case that, important as it is, won’t settle the fight, no matter how the judge rules. But it could portend the final outcome.

Here is what is happening and why in the biggest planned grocery merger in U.S. history, along with who is involved, and how the hearing could affect shoppers, the companies, and their nearly 5,000 stores that sell groceries in Idaho and elsewhere.

What is this court case about?

Kroger and Albertsons announced in 2022 that they wanted to merge. More precisely, Kroger, the nation’s largest traditional grocery company, wanted to buy Boise’s Albertsons, the second-largest, to form a supermarket colossus. The two companies said merging would help them compete more effectively with Walmart, Amazon and other retailers.

With more leverage over suppliers, they said, lower prices would result. But skeptics, including the Federal Trade Commission and attorneys general from multiple states, don’t believe them.

The FTC decided to hold administrative hearings to decide whether to approve the merger or block it, as federal law authorizes the agency to do. But the FTC worried that the two companies could merge without waiting for those hearings, which have yet to begin.

So in February, the agency and the states sued Kroger and Albertsons in federal court. They want a judge to issue a preliminary injunction to prohibit a merger before the FTC completes its hearings.

That’s the court proceeding that began Monday — not a trial, but a hearing to decide whether the judge should issue that injunction, a temporary court order intended to maintain the status quo until a final ruling is ultimately made.

The hearing is in U.S. District Court in Portland, where Kroger’s Fred Meyer chain is based.

What is the Federal Trade Commission?

Congress created the FTC in 1914 to block unfair competition in commerce . Its legal authority includes policing anticompetitive, unfair or deceptive business practices and regulating rules of trade within industries. Members are nominated by the president and confirmed by the Senate. Four of the five incumbent commissioners were appointed by President Joe Biden, including Chair Lisa M. Khan.

What states are fighting the merger?

Arizona, California, the District of Columbia, Illinois, Maryland, Nevada, New Mexico, Oregon and Wyoming. Their attorneys general joined the FTC’s lawsuit. All are Democrats except Wyoming’s Bridget Hill, a Republican.

Meanwhile, Colorado Attorney General Phil Weiser and Washington Attorney General Bob Ferguson, both Democrats, have sued independently of the FTC to block the merger. The judge in the Colorado case temporarily blocked the merger in July until that lawsuit, which has not yet gone to trial, is resolved.

The attorneys general of four states — Alabama, Iowa, Georgia and Ohio — support the merger . All are Republicans.

Who is the judge who will decide?

U.S. District Judge Adrienne Nelson . She is a 2023 appointee of Biden’s and a former member of the Oregon Supreme Court .

What do opponents say is wrong with the merger?

The FTC said the reduced competition would also lead to lower-quality products and services as consumers’ choices diminish. The agency said the merger would “immediately erase aggressive competition for workers,” too.

“Kroger’s acquisition of Albertsons would lead to additional grocery price hikes for everyday goods, further exacerbating the financial strain consumers across the country face today,” Henry Liu, director of the FTC’s Bureau of Competition, said in February. “Essential grocery store workers would also suffer under this deal, facing the threat of their wages dwindling, benefits diminishing, and their working conditions deteriorating.”

What do Kroger and Albertsons say?

They promised not to raise prices in response to the merger. “We will offer lower prices and more choices on products customers want, need and love,” Albertsons CEO Vivek Sankaran and Kroger Chairman and CEO Rodney McMullen wrote in a 2023 op-ed.

Kroger on Aug. 16 promised to double , to $1 billion, what it calls its investment in lower prices if the merger goes through.

Kroger also promised that it “will not close any stores, distribution centers or manufacturing facilities or lay off any frontline associates as a result of the merger.”

Why do Albertsons and Kroger want this merger, anyway?

The companies say it would help them compete more effectively in the shifting grocery market, where they face competition from Walmart, Amazon, Boise’s WinCo Foods and other stores. Greater buying power is one benefit they cite. For example, Albertsons says it must pay more for some products wholesale than Walmart charges at retail.

Even the combined company won’t command as much of the nation’s grocery market as Walmart doe s, a retail analyst who supports the merger told the Idaho Statesman.

In public statements, Kroger and Albertsons have sought to emphasize the benefits they say the merger will bring to customers, workers and communities. “The combined company will have a positive impact on our associates and the communities we are proud to serve,” Sankaran told a Senate committee in November 2022.

How much would Albertsons’ private-equity owners receive?

But the deal would benefit Albertsons’ shareholding owners, too.

The merger resulted from a review of strategic alternatives the company announced in February 2022. It would culminate an 18-year effort by Cerberus Capital Management to make and keep Albertsons profitable for its investors.

Cerberus is a New York private equity firm that led a group of investment companies that first acquired part of the then-struggling Albertsons Inc. in 2006. Cerberus and its partner companies gave up part of their ownership in return for money when they decided to start selling some stock to the public in 2020. Today the partners no longer have significant ownership in Albertsons, but Cerberus still owns 26% of it.

Kroger agreed in 2022 to pay $34.10 per share for Albertsons stock, a price that valued Albertsons at $24.6 billion. Albertsons already has since paid out $4 billion of that in a special $6.85 dividend. At the remaining $27.25 per share, Cerberus, cofounded and led by billionaire Stephen Feinberg , stands to receive $4.1 billion, based on the shares it reported holding as of Feb. 14.

What do others say, pro and con?

Unions representing workers in both grocery chains oppose the merger.

Six locals of the United Food and Commercial Workers on Monday held a news conference before the Portland hearing began to reiterate their resistance.

“We’re fighting back because we know that the proposed mega-merger between Kroger and Albertsons would likely lead to job losses, store closures, pharmacy and food deserts, and higher prices, which would harm working families in both rural and urban communities across the country,” said Kim Cordova, the union’s international vice president and the president of Local 7, representing workers in Colorado and Wyoming. “Kroger and Albertsons claim the merger is necessary to compete with Walmart and Amazon, but their true goal is to consolidate power and increase profits at the expense of workers and customers.”

But U.S. Sen. Sherrod Brown, a Democrat representing Kroger’s home state of Ohio, favors the merger. So does Greg Landsman, a Democratic congressman representing Cincinnati, where Kroger is headquartered.

“This merger has the potential to be great for the region and great for workers,” Brown told the Cincinnati Chamber of Commerce in June 2023. “I’ve been in touch with Kroger CEO Rodney McMullen. He knows that companies like Kroger need to work collaboratively with their unions if they want to succeed in the future. This would make them one of the largest union employers in the country, if they do this right.”

Members of Idaho’s congressional delegation have remained mostly silent on the merger.

What would happen to stores under the merger?

If the companies win, they would sell 579 stores under assorted banners to C&S Wholesale Grocers LLC, a little-known, New Hampshire business led by billionaire Rick Cohen that has operated primarily as a wholesaler so far. The stores include 10 Albertsons supermarkets in Idaho, including six in Boise, one in Meridian and one in Nampa, the Idaho Statesman reported July 9.

The companies have not said why these 10 stores were chosen, nor what names the Idaho stores would receive. C&S operates two retail grocery chains: Piggly Wiggly in the South, Midwest and Northeast, and Grand Union in New York and Vermont.

What happened Monday in the court hearing?

A lawyer for Albertsons told Nelson that it might have to lay off workers , close stores and stop serving some markets if its planned merger with Kroger isn’t allowed to proceed, Reuters reported from Portland.

What happens next?

The participants expect the Portland hearing to continue until mid-September.

If Nelson grants the FTC’s request for a preliminary injunction, Kroger and Albertsons could not merge until the FTC’s own administrative hearing is finished. That could take a year.

A lawyer for Kroger, Matthew Wolf, told the judge on Monday that such a decision could sink the merger even before the FTC hearing begins. “He said the FTC’s in-house administrative process is so long and cumbersome that merger deals almost always fall apart before it’s through,” The Associated Press wrote.

But Kroger is fighting the FTC’s administrative process on a separate front.

In an Aug. 19 request for a preliminary injunction of its own, filed in Cincinnati, the company said the FTC violated a standard the U.S. Supreme Court set in a June ruling that curbed some government use of administrative tribunals .

That ruling said defendants facing punitive enforcement actions have a Seventh Amendment right to a trial by jury. Kroger’s request could provide an early test of that standard’s application to other circumstances, such as the merger.

Kroger wants a court, not the FTC, to decide the merger’s fate. “We are asking the court to halt what amounts to an unlawful proceeding before the FTC’s own in-house tribunal,” McMullen said.

What about the missing Albertsons text messages?

Nelson noted a strike against Albertsons in an order she issued Sunday in preparation for the Portland hearing.

The order put into writing a decision she made Friday that the Statesman reported. The order said that the judge would not draw what lawyers call an adverse inference from the failure of four Albertsons executives, including Sankaran, the CEO, to produce text messages about the merger. An adverse-inference ruling implies that the court infers a violation of the law from the destruction or withholding of evidence.

Nelson said the FTC did not show that Albertsons executives intended to withhold the texts from the court, so she could not impose an adverse inference. But she said the lost text messages should have been preserved for the court, and Albertsons failed to take reasonable steps to preserve them.

“Accordingly, the court grants plaintiffs leave to examine in depth the four witnesses’ practice of deleting text messages and will treat with skepticism claims regarding those texts,” the judge wrote.

What is Albertsons’ story?

Joe Albertson founded his first store at 16th and State streets in 1939 where Boise’s downtown meets the North End. He incorporated the company in 1945 and led it as chairman as the business kept expanding until his retirement in 1976.

After Albertson died in 1993, his company struggled as Walmart and other competitors rose, the Statesman previously reported. Albertsons Inc. put itself up for sale in 2005 and broke up in 2006 after years of losses.

An investment consortium led by Cerberus bought some of the stores and continued running them from Albertsons’ headquarters in Boise, though none of those stores were in Idaho. Supervalu, a Minnesota company grocery wholesaler, bought the rest, including the Albertsons stores in Idaho.

That meant there were two Albertsons chains for several years. Both companies sold or closed some stores, but Supervalu still couldn’t make a go of it, so it sold its remaining stores to the Cerberus consortium in 2013, reuniting what remained of the two Albertsons chains.

The reunited company more than doubled in size in 2015 when it merged with the larger Safeway chain. It attempted to merge with Rite Aid in 2018, but that effort fell apart.

Albertsons has sharply reduced the debt it took on in the 2013 reunion and the 2015 Safeway acquisition. The company has opened new stores and modernized others in the Boise area over the past decade.

Today, Albertsons remains Idaho’s largest company and a Boise icon. It has $79 billion in yearly sales , 285,000 employees nationwide and more than 5,000 employees in Idaho, making it the Gem State’s fourth-largest employer. It has more than 2,200 retail food and drug stores under 24 banners in 34 states, including 37 in its native state, all operating under the Albertsons banner.

The median Albertsons employee in 2023 earned $31,781 per year, the company said in June in its 2024 proxy statement. Sankaran, the CEO, earned 475 times that much, $15.1 million.

Kroger’s Fred Meyer unit, based in Portland, competes directly with Albertsons in the Boise area. Fred Meyer employs more than 2,000 Idahoans and has seven stores in the Treasure Valley. Kroger, based in Cincinnati, employs more than 400,000 people nationwide.

Divesting 10 Idaho stores would reduce Albertsons’ Idaho footprint to 27 stores, a distribution center in Meridian and whatever Kroger keeps of Albertsons’ corporate headquarters operation in Boise.

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