Kroger vows to terminate Albertsons merger if federal judge delays its closing

The Kroger Co. will walk away from the largest acquisition in its history if a federal judge grants a temporary injunction to delay its $24.6 billion purchase of Albertsons Companies Inc.

If that happens, Albertsons is likely to cut jobs, close stores and seek a new buyer.

Those were two of the big takeaways from opening statements in a three-week hearing that will determine whether the merger violates antitrust rules.

U.S. District Judge Adrienne Nelson heard more than three hours of opening statements from four attorneys on both sides of the deal yesterday, as hundreds of interested parties listened to the arguments on an audio feed.

Attorneys for the Federal Trade Commission warned the merger would lead to higher prices and lower wages. Attorneys for both companies argued more damage will be done by blocking the deal.

"It could mean layoffs. It could include closing stores. It may include exiting certain markets altogether," Albertsons attorney Enu Mainigi said. "These are the kind of things that are on the table if the merger does not go through."

FTC Chief Trial Counsel Susan Musser asked Nelson to “simply push pause” on the transaction so an FTC administrative law judge can fully evaluate the impact of the deal in a hearing that’s tentatively scheduled to begin Oct. 1.

“Stopping this multibillion-dollar deal will keep in place the vigorous competition that acts as a check on rising grocery prices and inspires improvements in quality and innovations,” Musser said.

Kroger attorney Matthew Wolf said financing arrangements and licensing transfers will expire if the deal is delayed, making the deal impossible to close.

“This proceeding will decide the fate of the merger. Let there be no mistake,” Wolf said. “There are 85 million families that are waiting to hear what will happen.”

Monday's hearing was the first time Kroger had publicly stated that it would abandon the merger if an injunction was granted. Both companies have spent a combined $864 million on the deal and Kroger must pay Albertsons an additional $600 million if the transaction isn’t completed.

As expected, the FTC and the companies had widely different views of the case’s key issues. The FTC argued the deal should be evaluated based on supermarket competition only. The companies said all food sellers should be part of the equation. The FTC said C&S Wholesale Grocers is not equipped to operate the 579 stores the companies have offered to sell. The companies said C&S will be a viable competitor that preserves union jobs.

But the companies also defended the deal in surprisingly stark terms that call into question what will become of both rivals if they’re forced to compete alone against Walmart, Costco and Amazon.

“In some of Albertsons markets, we sell one type of Kraft mac and cheese for $3.49. In the same market, Walmart sells the same Kraft mac and cheese for $2.98,” Mainigi said. “The cost at which Albertsons can buy this mac and cheese is higher than the price at which Walmart can sell it.”

Wolf said the merger would give Kroger a national footprint to match those already in place for its biggest rivals — and those being built by European competitors like Aldi and Lidl, which are rapidly expanding in the U.S.

“These folks are taking enormous shares of the grocery market already and are poised to do much more, all at prices much lower than the incumbents,” Wolf said.

Because Kroger doesn’t directly compete against Albertsons in Greater Cincinnati, the merger isn’t likely to have a big impact on local grocery prices. But, Kroger is also Cincinnati’s largest company, with $150 billion in annual sales and about 9,000 local employees. So, completing the merger would positively impact the Tri-State, making headquarters growth more likely and bringing more Kroger suppliers to town.

If Kroger prevents a temporary injunction, it still faces state antitrust lawsuits in Washington and Colorado. And it’s likely to face that FTC administrative hearing, which Wolf said would take 12 to 24 months. Hoping to avoid that fate, Kroger sought an injunction of its own last week in the U.S. District Court for the Southern District of Ohio. It argues the FTC hearing is unconstitutional and an “inappropriate attempt to receive multiple opportunities to litigate the same issues.”

The federal hearing in Portland will run through Sept. 13. Kroger CEO Rodney McMullen is among the witnesses scheduled to testify next week.