PORTLAND, ORE. — The more than two-year-old, $24.6 billion merger deal between The Kroger Co. and Albertsons Cos. – the nation’s first- and second-largest conventional supermarket retailers – has been blocked by a federal court in Oregon and a state court in Washington.

In separate rulings on Dec. 10, the US District Court for Oregon in Portland granted a preliminary injunction and the State of Washington Kings County Superior Court in Seattle granted permanent injunction against the transaction, preventing Cincinnati-based Kroger from closing its agreement to acquire Albertsons.

The case in Oregon – brought by the Federal Trade Commission, eight states (Arizona, California, Illinois, Maryland, Nevada, New Mexico, Oregon and Wyoming) and the District of Columbia – stops the companies from moving forward with the deal at a national level, while the case in Seattle brought by Washington’s attorney general prohibits the transaction in Washington state. Decisions in both cases had been long in coming, as the hearings wrapped up months ago.

“The FTC, along with our state partners, scored a major victory for the American people, successfully blocking Kroger’s acquisition of Albertsons,” said Henry Liu, director of the FTC’s Bureau of Competition. “This historic win protects millions of Americans across the country from higher prices for essential groceries — from milk, to bread, to eggs — ultimately allowing consumers to keep more money in their pockets. This victory has a direct, tangible impact on the lives of millions of Americans who shop at Kroger or Albertsons-owned grocery stores for their everyday needs, whether that’s a Fry’s in Arizona, a Vons in Southern California or a Jewel-Osco in Illinois.

“This is also a victory for thousands of hard-working union employees, protecting their hard-earned paychecks by ensuring Kroger and Albertsons continue to compete for workers through higher wages, better benefits and improved working conditions.”

Kroger had said it would invest over $1 billion to lower grocery prices, another $1 billion to raise grocery worker wages and an additional $1.3 billion to improve Albertsons stores once the acquisition was finalized.

“Kroger is disappointed in the opinions issued by the US District Court for the District of Oregon and the Washington State Court, which overlook the substantial evidence presented at trial, showing that a merger between Kroger and Albertsons would advance the company’s decades-long commitment to lowering prices, respecting collective bargaining agreements, and is in the best interests of customers, associates and the broader competitive environment in a rapidly evolving grocery landscape,” Kroger said in a statement on Dec. 10.

Merger deemed anticompetitive

Judges in both cases essentially agreed that a combination of Kroger and Albertsons – the biggest-ever US supermarket merger deal – would create an imbalanced grocery retail playing field, especially by eliminating Albertsons as a competitive counter to Kroger in many geographic markets.

“On balance, the court finds that both qualitative and quantitative evidence shows that defendants engage in substantial head-to-head competition and the proposed merger would remove that competition,” Oregon US District Court Judge Adrienne Nelson wrote in her decision. “As a result, the proposed merger is likely to lead to unilateral competitive effects and is presumptively unlawful.”

The rulings also concluded that Kroger and Albertsons’ store divestiture pact with distributor C&S Wholesale Grocers wouldn’t create a supermarket competitor strong enough to stand on its own.

“Defendants have failed to show that a divestiture to C&S will restore lost competition, not because it divests too few stores, but because C&S is unlikely to be able to run them in a way that restores competition,” Washington King County Superior Court Judge Marshall Ferguson stated in his ruling. “Simply expanding the scope of that inadequate divestiture will not accord complete relief from the anticompetitive transaction.”

In addition, the judges were not swayed by Kroger’s and Albertsons’ arguments that the merger would better equip them to battle rising competition from mass, discount and online retailers and bring more benefits to consumers, employees and communities via greater economies of scale. On the contrary, the FTC and Washington state convinced the judges that the merger would result in market concentration and lead to higher grocery prices and fewer grocery store choices for consumers and less bargaining power for unionized workers.

“Despite defendants’ best intentions to follow through on their promises at this moment, the business realities on the ground after the merger may change what defendants are able to invest or what is in their best interest to invest,” Judge Nelson said, adding that Kroger-Albertsons’ argument also fell short on the issue of efficiencies. “A significant portion of the purported merger efficiencies are neither merger-specific nor verifiable,” she said. “Without evidence of merger-specific, verifiable efficiencies, the benefits of which will be passed through to consumers, defendants cannot rebut the presumption of anticompetitive effects.”

Kroger has seen the merger with Albertsons as a way to add scale to better compete with mass chains like Walmart, Costco, Target and Dollar General as well as discount grocers and online retailers like Aldi and Amazon, which have siphoned significant grocery retail market share from traditional supermarkets over the past few decades.

When announced in October 2022, Kroger and Albertsons said the merger would form a company with revenue of $210 billion and 4,996 stores, 66 distribution centers, 52 manufacturing plants, 3,972 pharmacies, 2,015 fuel centers and 710,000 employees in 48 states and DC. A September 2023 divestiture deal with C&S Wholesale Grocers — intended to address regulators’ antitrust concerns — was expanded this past April to a $2.9 billion package, including 579 stores in 18 states and DC; eight distribution centers and additional warehouse space; and five private labels, plus access to two other brands.

“We are disappointed by the US District Court’s decision to grant the FTC’s request for a preliminary injunction,” Albertsons said in a Dec. 10 statement. “We believe we clearly outlined during the proceedings how the proposed merger would expand competition, lower prices, increase associate wages, protect union jobs and enhance customers’ shopping experience.”

According to Bob Ferguson, Washington’s attorney general, Kroger and Albertsons are the two largest supermarket chains in the state, generating more than half of the state’s supermarket sales through their 300-plus stores, including 194 locations in the Seattle-Tacoma-Bellevue metropolitan area. 

“We’re standing up to mega-monopolies to keep prices down,” Ferguson said. “We went to court to block this illegal merger to protect Washingtonians’ struggling with high grocery prices and the workers whose jobs were at stake. This is an important victory for affordability, worker protections and the rule of law.”

What’s next?

Both Kroger and Albertsons said they’re sizing up the impact of the court rulings to determine their next moves. Kroger had agreed to pay a termination fee of $600 million to Albertsons if the merger deal fell through.

“The company is currently reviewing its options,” Kroger said.

Albertsons commented, “We are carefully reviewing the court’s opinion and are evaluating our options in accordance with the merger agreement.”

Last week, in an analyst call on fiscal 2024 third-quarter results, Kroger chairman and chief executive officer Rodney McMullen said his company wouldn’t be looking for “the next Albertsons” in terms of seeking another transformational M&A opportunity if the merger isn’t realized.

“If it (the Albertsons transaction) doesn’t happen, we’ll continue to go on,” McMullen told analysts.

Meanwhile, rulings are pending from a Colorado state trial to block the merger that was completed in September and an FTC administrative complaint against the transaction that was filed in late February along with the agency’s antitrust lawsuit. In mid-August, Kroger filed suit to toss the FTC’s administrative complaint, calling it unconstitutional. 

In the FTC case decision in Oregon, Judge Nelson noted that the preliminary injunction doesn’t negate the possibility that Kroger and Albertsons can proceed with their transaction, depending on the outcome of the administrative ruling.

“Although defendants may choose to abandon the merger because of the preliminary injunction, this order in no way forces them to do so and leaves open the possibility that they may pursue the merger at a later date should it be deemed lawful in the administrative proceedings,” Nelson said. “An injunction simply pauses the merger.”

Likewise, Judge Ferguson wrote in his decision that the ruling only pertains to Washington state.

“An injunction blocking the merger in Washington is not a ‘nationwide injunction,’” he said. “The injunction restrains the conduct only of defendants, who do significant business in Washington, and only as to this specific merger, which has anticompetitive effects in Washington.”