Kroger, Albertsons unveil final merger proposal before judge decides whether to block it

PORTLAND, Ore. (AP) — The federal government asked a U.S. District Court judge Tuesday to temporarily halt the proposed merger of Kroger and Albertsons, saying in closing arguments that the combination would “almost certainly” benefit shareholders rather than ordinary customers.

Lawyers for the Federal Trade Commission and the supermarket chain delivered closing arguments at the end of a three-week hearing on the commission’s request for a temporary injunction blocking the $24.6 billion deal.

Kroger and Albertsons have argued that their merger will allow them to maintain freedom of choice for consumers by better competing with rising rivals such as Walmart, Costco and Amazon.

“If we do nothing, the grocery store on the street corner is in real danger,” said Kroger attorney Matt Wolf.

U.S. District Judge Adrienne Nelson must now decide whether to grant the injunction while the FTC’s antitrust complaint moves on to an internal administrative judge. Nelson said she will work “quickly” on her decision but did not say when she would issue a ruling.

Kroger and Albertsons have proposed the largest supermarket merger in U.S. history in 2022. The FTC says the merger would eliminate competition and lead to higher food prices for already struggling customers.

Susan Musser, the FTC’s general counsel, argued Tuesday that Kroger and Albertsons primarily compete with each other, not with places like Amazon or Costco, where consumers do different types of shopping.

“It is the local competition in these local communities that will be eliminated by this merger,” Musser said.

Wolf, however, has issued a challenge, arguing that Kroger and Albertsons are competing for the same customers as retailers that have lower labor costs because their workers are not unionized.

“Supermarkets are losing this fight for food, and we are paying the price,” Wolf said.

Kroger has said it plans to invest $1 billion in lower prices if the merger goes through. Wolf said the company will focus on lowering prices “from day one.”

But Musser said the judge should be skeptical of the companies’ promises, which aren’t legally binding. Kroger and Albertsons executives may mean well, she said, but they will face pressure to report profits and keep prices high.

“Management has a fiduciary duty not to buyers but to shareholders,” Musser said. “Experience tells us that promises can be broken.”

Albertsons CEO Vivek Sankaran, who testified earlier in the hearing, was present for closing arguments Tuesday but did not speak.

FTC lawyers noted that the two supermarket chains currently compete in 22 states, closely matching each other on price, quality, private-label products and services such as in-store pickup. Shoppers benefit from that competition and would lose those benefits if the merger were allowed, they said.

Under the agreement, Kroger and Albertsons will sell 579 stores in the overlapping locations to C&S Wholesale Grocers, a New Hampshire-based supplier to independent supermarkets that also owns the Grand Union and Piggly Wiggly retail brands.

The FTC has said C&S is not prepared to take over the stores, which are now owned by Albertsons and Kroger. Earlier in the hearing, Laura Hall, senior counsel for the FTC, cited internal documents that showed C&S executives were skeptical about the quality of the stores they would get and may want the option to sell or close them.

But Wolf said Tuesday that C&S has the experience and national scale to handle the sale. “We picked a batch that could get the job done,” he said.

Cincinnati, Ohio-based Kroger operates 2,800 stores in 35 states, including brands such as Ralphs, Smith’s and Harris Teeter. Boise, Idaho-based Albertsons operates 2,273 stores in 34 states, including brands such as Safeway, Jewel Osco and Shaw’s. Combined, the companies employ about 710,000 people.

In trying to stop the merger, the FTC and union leaders argued that worker wages and benefits would fall if Kroger and Albertsons stopped competing with each other. They also expressed concerns that potential store closures could create so-called food and pharmacy “deserts” for consumers.

Six local chapters of the United Food and Commercial Workers International Union, which together represent 100,000 Kroger and Albertsons workers in 12 states, said in a joint statement Tuesday that the companies cannot be trusted.

“The corporations have admitted under oath, despite repeated comments to the public and media to the contrary, that some stores may close after the merger, prices may not go down after the merger, and the claims they have made to protect union jobs are not legally enforceable,” the group said in a statement.

Attorneys general for Arizona, California, the District of Columbia, Illinois, Maryland, Nevada, New Mexico, Oregon and Wyoming joined the FTC’s lawsuit on the commission’s side. Washington and Colorado filed separate cases in state courts seeking to block the merger. Washington’s case was unsealed in Seattle on Monday.

If Nelson agrees to issue an injunction, the FTC plans to hold internal hearings starting Oct. 1. Kroger sued the FTC last month, arguing that the agency’s internal proceedings were unconstitutional and that it wants the merger’s validity to be decided in federal court. That lawsuit is pending in federal court in Ohio.

Shares of Kroger and Albertsons fell 2% in trading Tuesday.

Durbin reported from Detroit.