Proposed merger of Kroger and Albertsons halted by federal and state judges

The proposed $24.6 billion merger was stopped on Tuesday.

The proposed merger between supermarket giants Kroger and Albertsons floundered on Tuesday after judges overseeing two separate cases both halted the deal.

U.S. District Court Judge Adrienne Nelson issued a preliminary injunction blocking the merger Tuesday after holding a three-week hearing in Portland, Oregon.

Later Tuesday, Judge Marshall Ferguson in Seattle issued a permanent injunction barring the merger in Washington after concluding it would lessen competition in the state and violate Washington's consumer-protection laws.

Kroger and Albertsons said Tuesday they are disappointed in the decisions and are reviewing their options. The companies could appeal, although the deal could fall apart in the time it would take for those cases to be considered.

“For the parties, the road gets steeper from here, just given the costs of keeping a deal together and the significant doubts about its viability given today’s opinion," said Jeffrey Oliver, a partner specializing in antitrust law at the law firm Baker Botts.

Kroger and Albertsons in 2022 proposed what would be the largest grocery store merger in U.S. history. The companies said a merger would help them better compete with big retailers like Walmart, Costco and Amazon.

But the Federal Trade Commission sued earlier this year, asking Nelson to block the $24.6 billion deal until an in-house administrative judge at the FTC could consider the merger. Attorneys general from Arizona, California, Illinois, Maryland, Nevada, New Mexico, Oregon, Wyoming and the District of Columbia joined the FTC's lawsuit.

Nelson agreed to pause the merger, saying that the FTC had shown it was likely to prevail in the administrative hearing.

“Any harms defendants experience as a result of the injunction do not overcome the strong public interest in the enforcement of antitrust law, especially given the difficulty in disentangling a premature merger,” she wrote in her opinion.

The FTC called Nelson’s decision “a major victory for the American people" that will protect them from higher grocery prices. In Washington, Governor-elect Bob Ferguson, who brought the case against Kroger and Albertsons as the state’s attorney general, called the state court’s decision “an important victory for affordability, worker protections and the rule of law.”

Federal regulators argued that combining the two chains would be bad for consumers and workers by eliminating competition.

A coalition of United Food and Commercial Workers local unions representing more than 100,000 Kroger and Albertsons employees applauded the court decisions Tuesday.

“This mega-merger would be bad for workers who deserve a workplace where they can be paid well for their labor, be safe and be respected,” the unions said.

Kroger had promised to invest $1 billion in lower grocery prices, an additional $1 billion in higher grocery worker wages and $1.3 billion to improve Albertsons stores. But Nelson wasn't swayed.

“The promise to make a price investment is not legally binding, and the court must give limited weight to a non-binding promise made during these proceedings,” she wrote in her decision. Nelson added that the companies can still invest in lower prices if the FTC approves the merger in its administrative hearings.

The federal case now moves to the FTC, although Kroger and Albertsons have asked a different federal judge to block the in-house proceedings. Colorado is also trying to halt the merger in its own state trial.

On Tuesday, President-elect Donald Trump named Andrew Ferguson, an FTC commissioner, as the next head of the FTC. He replaces Lina Khan, who was an aggressive enforcer of antitrust law. Still, it's not clear what impact the change in administrations will have on Kroger and Albertsons' proposed merger. High grocery prices have been a significant issue for voters, and in past hearings, lawmakers from both parties were skeptical that the merger would lower prices.

Kroger and Albertsons currently compete in 22 states, closely matching each other on price, quality, private label products and services like store pickup. The FTC and the state of Washington argued that a merger would eliminate that competition and raise prices for already struggling consumers. The FTC also said the merger would hurt workers since Kroger and Albertsons would no longer compete to hire them.

But Kroger and Albertsons argued their merger would preserve consumer choice by allowing them to better compete against its growing rivals. In its testimony, Albertsons warned Nelson that it might have to lay off workers, close stores and even exit some markets if the merger weren't allowed to proceed.

Under the merger agreement, Kroger and Albertsons would sell 579 stores in places where their locations overlap to C&S Wholesale Grocers, a New Hampshire-based supplier to independent supermarkets that also owns the Grand Union and Piggly Wiggly store brands.

The FTC and the state of Washington argued that C&S is ill-prepared to take on the stores and may want the option to sell or close them. Both judges agreed.

“The current competition between Kroger and Albertsons' stores is fierce in the state of Washington," Ferguson said in court before his ruling was released. "Wholesaler C&S, with its limited retail experience and infrastructure, will not be able to replicate the ferocity of that competition or compete effectively in Washington against the colossus that is a merged Kroger and Albertsons.”

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

Shares in Kroger Co. rose 5% in trading Tuesday, while those in Albertsons Co. fell 2%.