business news in context, analysis with attitude

Bloomberg reports that California Attorney General Rob Bonta is preparing a lawsuit that will challenge Kroger's proposed $24.6 billion acquisition of Albertsons.

“We are moving toward acting,” Bonta said. “Right now, there’s not a lot of reason not to sue.”

However, Bloomberg points out that Bonta also said "that California is still looking at the proposed divestiture and hasn’t definitively decided to file a case.

"The state could challenge the merger on its own, or it could partner with the FTC and other states on a lawsuit. California, which has the largest antitrust staff of any in the country, has filed its own merger challenges when federal enforcers have declined, notably joining with other states in an unsuccessful effort to block T-Mobile US Inc.’s purchase of provider Sprint Corp. in 2020."

Bonta reportedly "met with US Federal Trade Commission Chair Lina Khan … and discussed the deal. The FTC has been conducting its own review of the merger, which would combine the two biggest traditional supermarket chains in the US."

Bloomberg notes that "the secretaries of state or treasurers from 11 states have pressed the FTC to block the deal over concerns it could harm wages."

Kroger has consistently said that the merger is necessary to make it possible for the two companies to compete effectively with Walmart and Amazon, that no front line employees will be laid off as a result, and that it will enable the company to lower prices and invest in higher wages.  Kroger also has committed to divesting at last 413 stores - selling them to C&S Wholesale Grocers - if the FTC allows the merger.

Kroger CEO Rodney McMullen has said that the company will go to court to fight for the merger if the FTC rejects the deal on antitrust grounds.

KC's View:

California has a lot of skin in this game - Kroger and Albertsons operate a lot of stores in the state, and their banners have competed there for decades.

But the FTC, as well as state attorneys general, have to consider a number of things here.  Sure, a merged Kroger-Albertsons entity would be better able to compete against Amazon and Walmart.  That's the upstream view.

There's also the downstream view, as regulators and litigators have to consider whether a merged entity will have so much weight and take up so much oxygen that it will put not just smaller competitors at a severe disadvantage, but also the vendors with which it does business.

I think the FTC and state attorneys general have to look both ways.  Upstream and downstream.  They have to consider the impact on broader economic growth - a Kroger-Albertsons combination may be better able to compete with Amazon and Walmart, but it also could put smaller competitors and vendors out of business, which could tamp down on broader economic growth and innovation.

All questions that demand answers.