Kroger and Albertsons this morning said that "they have entered a definitive agreement with C&S Wholesale Grocers, LLC for the sale of select stores, banners, distribution centers, offices and private label brands" as a way of assuaging regulatory concerns about their proposed $24.6 billion merger in connection with their proposed merger."
C&S will spend $1.9 billion to acquire 413 stores and the additional assets. In addition, the announcement makes clear that if the FTC demands additional divestments as a condition of approval, 237 more stores have been identified that C&S will acquire.
The announcement specifies that "the divestiture transaction includes 413 stores, along with QFC, Mariano's and Carrs brand names. Stores currently under these banners that are retained by Kroger will be re-bannered into one of the retained Kroger or Albertsons Cos. banners following the close of the transaction. In the four states where C&S will have the license to the Albertsons banner, Kroger will re-banner the retained stores following the close of the merger with Albertsons Cos. Kroger will maintain the Albertsons banner in the remaining states. In addition, Kroger will divest the Debi Lilly Design, Primo Taglio, Open Nature, ReadyMeals and Waterfront Bistro private label brands."
The divested stores include 104 Albertsons Cos. and Kroger stores in Washington State, 66 Albertsons Cos. and Kroger stores in California, 52 Albertsons Cos. stores in Colorado, 49 Albertsons Cos. and Kroger stores
in Oregon, 28 Albertsons Cos. stores in Texas and Louisiana, 24 Albertsons Cos. stores in Arizona, 15 Albertsons Cos. stores in Nevada, 14 Kroger stores in Illinois, 14 Albertsons Cos. stores in Arkansas, 13 Albertsons Cos. stores in Idaho, 12 Albertsons Cos. stores in New Mexico, 12 Albertsons Cos. stores in Montana, Utah and Wyoming, and 10 Harris Teeter stores in Maryland, Virginia, and Washington, DC.
Previously, the two companies had suggested that they'd be willing to divest as many as 375 stores to get Federal Trade Commission (FTC) approval of the deal, and Kroger suggested in a federal filing that 650 was the upper limit.
The announcement posits that "this comprehensive divestiture plan marks a key next step toward the completion of the merger by extending a well-capitalized competitor into new geographies. The divestiture plan ensures no stores will close as a result of the merger and that all frontline associates will remain employed, all existing collective bargaining agreements will continue, and associates will continue to receive industry-leading health care and pension benefits alongside bargained-for wages."
- KC's View:
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Not sure how the FTC will see this, but Kroger and Albertsons seem to have done an excellent job of addressing the major issues that have been raised - front line job losses, store closures, and prices.
This deal virtually assures that the first two issues now are off the table - union jobs remain union jobs, no front line employees get laid off, and no stores get closed. The $1.9 billion that C&S is paying can be used to give Kroger greater pricing power, and so it will continue to argue that, just as has happened in previous acquisitions, it will lower prices as a result of the deal.
I also have to say here that C&S comes out looking really, really good. It is a solid operator that is about to become a far more formidable national presence with greater scale and a heightened ability to compete with the likes of Walmart and Amazon (and, of course, Kroger). It's investment in technology, and owner Rick Cohen’s warehouse automation company, Symbotic, is going to give these stores the ability to improve and expand their value proposition.
I've argued all along that Kroger/Albertsons would have to divest a number of stores at the high end of their estimate - it so happens that 413 + 237 = 650. So they're clearly thinking the same way. I suspect that the FTC will want more than a 413-store divestment, if only to prove that it has muscle enough to demand more; this deal obviously anticipates this.
I've also been arguing that the FTC would probably rule against a merger, which would force the deal into the courts, where Kroger and Albertsons likely would prevail. Too early to say for sure, of course, but I think I may have gotten that wrong. I think the odds of FTC approval just went way up.
Challenges remain. But it strikes me that on the face of it, this is a win-win deal for the parties involved, with the ultimate benefit being that communities aren't going to lose stores and jobs, and the marketplace remains a competitive one. That should be everybody's bottom line.
