Federal, state judges rule against Kroger-Albertsons mega grocery merger

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

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

Later Tuesday, Judge Marshall Ferguson in Seattle issued a permanent injunction barring the merger in Washington after concluding that it would lessen competition in the state.

A decision is pending in Colorado on a lawsuit against the merger.

Kroger and Albertsons in 2022 proposed what would be the largest grocery store merger in U.S. history. 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’s implications.

Nelson agreed to pause the merger.

“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.

A trial in Denver District Court in a lawsuit filed by Colorado Attorney General Phil Weiser that seeks to block the merger wrapped up in late October.  A decision by District Judge Andrew J. Luxen is pending.

Weiser said consolidation of Kroger, which owns King Soopers and City Market stores in Colorado, and Albertsons, which owns Safeway, would severely diminish competition in the industry and harm Colorado customers, grocery workers and local farmers and ranchers.

“All along, we have made the case that the Kroger/Albertsons merger is illegal and bad for Colorado,” Weiser said in a statement. ” We wait for a ruling in our case, and we are optimistic that this illegal merger will be permanently blocked.”

The case may now move to the FTC, although Kroger and Albertsons have asked a different federal judge to block the in-house proceedings.

The FTC argued that Kroger and Albertsons compete in 22 states, closely matching each other on price, quality, private label products and services like store pickup. A merger would eliminate that competition and raise prices for already struggling consumers, the government said. 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.

Kroger said in a statement that it is disappointed by the court decisions and is reviewing its options.

“Through its proposed merger with Albertsons, Kroger would invest more than $1 billion in lower grocery prices, invest an additional $1 billion in higher grocery worker wages, and invest an additional $1.3 billion to improve Albertsons stores,” Kroger said.

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 argued that C&S is ill-prepared to take on the stores and may want the option to sell or close them. But Kroger and Albertsons said C&S has the experience and national scale to handle the divestiture.

In Colorado, the proposed divestiture would spin off 91 of the stores owned by Albertsons, a dairy plant and a distribution center to C&S. Two Albertsons stores are on the list of those to be sold and the rest are under the Safeway banner.

As part of the Colorado lawsuit, the state is seeking a $1 million penalty from each of the grocery chains for an alleged “no poach” agreement that violated state anti-trust laws during a 2022 strike against King Soopers. Weiser said that emails between the two chains show that Albertsons agreed not to hire King Soopers employees or solicit the company’s pharmacy customers during the strike.

A separate lawsuit by Colorado grocery employees claims Kroger and Albertsons colluded during the strike to diminish the union’s leverage at the bargaining table, resulting in lower wages and benefits than workers otherwise would have won.

Kroger and Albertsons have denied the claims.

Kroger could appeal the federal decision, said Christine Bartholomew, a professor at the University of Buffalo School of Law who practiced antitrust law. “Even if they do appeal, my question is at what point are their shareholders going to say it is getting too expensive to even pursue?”

Bartholomew said she wasn’t surprised by the federal decision because the proposed consolidation had problems from the beginning, including concerns about loss of competition in the industry. “This is a good day for consumers,” she said.

Members of the United Food and Commercial Worker union across 14 states, including Colorado, released a statement Tuesday to urge Kroger and Albertsons “to abandon this misguided merger and turn their focus back where it belongs: operating grocery stores.”

However, a nonproft research center criticized the approaches the courts used to reach their decisions as “based more on vibes than economics.” The courts rejected the grocers’ arguments that their greatest competition is from Walmart and other food super centers, not each other, said Geoffrey A. Manne, president at the International Center for Law & Economics, calling the determination “ backward-looking.”

The grocery chains have said that combining their companies is the best way for them to compete against Walmart, the nation’s leading grocer in terms of sales, and other growing chains.

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.

Denver Post reporter Judith Kohler contributed to this report.