Kroger CEO ‘charming’ and ‘impressive’ at federal antitrust hearing

CINCINNATI — CEO Day took part in a federal antitrust hearing that will likely decide whether Cincinnati-based Kroger Co. can complete the largest acquisition in its history.

Kroger CEO Rodney McMullen delivered testimony that was “factual and fairly friendly,” according to a Bloomberg reporter who watched the speech live and spoke with WCPO 9 News about it.

“Mr. McMullen is quite charming,” said Leah Nylen, who has practiced antitrust for more than a decade. “He didn’t get upset at all. It was very impressive.”

McMullen was the first witness called after the Federal Trade Commission settled its case against Kroger’s $24.6 billion takeover of grocery chain Albertsons. The FTC and nine states are suing to block the deal, saying it would reduce competition that prevents high prices and low wages.

Kroger says the merger is necessary to compete with larger retailers including Walmart, Amazon and Costco, as well as fast-growing discount chains such as Aldi and Lidl.

U.S. District Judge Adrienne Nelson has scheduled a three-week trial that will end Sept. 13. The FTC is seeking a preliminary injunction so an FTC administrative judge can more closely examine whether the merger violates federal antitrust laws. Kroger’s attorneys have said such a delay would effectively kill the deal.

And that was the state of affairs Wednesday as McMullen testified for more than two hours before Albertsons CEO Vivek Sankaran took the stand.

Nylen said McMullen had a response to each of the FTC’s criticisms of the deal, but Sankaran struggled to explain why the text messages were deleted from his phone after the FTC’s protective order was obtained. The agency asked Judge Nelson to “draw an adverse inference” from the missing text messages, meaning she could look at the FTC’s case more favorably because of the lack of evidence.

Nylen said the testimony showed that Albertsons allows employees to use their own phones for work, so it’s up to those employees to retain the data when required. Sankaran was one of three Albertsons employees who accidentally set their phones to delete messages after 30 days. That meant the FTC couldn’t see Sankaran’s messages to McMullen, his board and executives at C&S Wholesale Grocers, which agreed to buy 537 Kroger and Albertsons stores to ease antitrust concerns.

“Mr. Sankaran said he was terribly embarrassed when he discovered that this automatic deletion feature was turned on,” Nylen said. “He went on to say that he personally called AT&T to see if they could recover his text messages.”

Much of McMullen’s testimony focused on whether Kroger would raise prices after eliminating one of its biggest competitors.

McMullen “really opposed the idea,” Nylen said. “He said, ‘If we tried to raise prices, we would lose business — especially to people like Costco, Walmart, Aldi and Lidl.’”

When the FTC responded that Kroger’s commitment to invest $1 billion in lower prices was not legally binding, McMullen had an answer.

“While it’s not legally binding, he says it’s somewhat reputationally binding. Like, if we say this and then go and do the opposite right after the merger, no one will believe us anymore.”

McMullen also rejected the FTC’s claim that the merger would weaken unions’ bargaining power.

“He said he grew up in a union family. He used to be a union man at Kroger,” Nylen said. “When they were looking at the sale options, one of the most important things to him was that whoever bought the stores would agree to honor union contracts. And because of that, even though they got over 100 offers, he believed that only three of them were really viable because of that promise that they wanted, that they would honor union contracts.”

Although Nylen believed McMullen had successfully convinced Judge Nelson to make the deal, she could not say whether the testimony moved Judge Nelson.

“She’s very hard to figure out,” Nylen said. “She doesn’t ask many questions. She rules if there are objections, but she doesn’t ask questions herself.”

So whether McMullen’s testimony was charming or not, it’s unclear whether the judge found it persuasive.

“The judge actually instructed the witnesses that she didn’t want them to look at her, that their job was to testify in court,” Nylen said. “She instructed the witnesses to look at the legal team, not at her specifically.”

The hearing ends Sept. 13, and the judge has not said how soon she will issue a ruling. If Kroger wins at this stage, an FTC administrative hearing could begin in October, but Kroger is suing to block it.