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By Jodi Godoy
(Reuters) – A U.S. judge on Tuesday blocked the pending $25 billion merger of U.S. grocers Kroger ( NISE: ) and Albertsons ( NISE: ), in a Federal Trade Commission victory that Kroger said was likely to overturn the deal.
The FTC argued in a three-week trial in Portland, Oregon that the merger would eliminate direct competition between the top two traditional grocery chains, leading to higher prices for customers and reduced bargaining leverage for union workers.
The ruling, which could be appealed, is a major victory for FTC Chairwoman Lina Kahn and President Joe Biden’s administration in their bid to combat box office inflation. Americans’ dissatisfaction with the prolonged rise in food prices since the pandemic has been a key theme in the run-up to President-elect Donald Trump’s victory in November.
U.S. District Judge Adrienne Nelson agreed that the merger would likely remove direct competition between the two stores, making it illegal.
Separately on Tuesday, a Washington state court judge in Seattle also decided to block the merger in a case brought by Attorney General Bob Ferguson, who estimated that half of all supermarkets there are owned by one of the two chains.
Albertsons shares fell 2.3%. Kroger shares rose 5.1%.
The White House said after the ruling that they are “proud to fight big corporate mergers that drive up prices, undercut workers and hurt small businesses.”
FTC spokesman Douglas Farrar said the win “clearly demonstrates that strong, reality-based antitrust enforcement is producing real results for consumers, workers and small businesses.”
Spokesmen for Kroger and Albertsons said the companies were disappointed by the rulings and were considering their options.
“We believe we made it clear during the process that the proposed merger would expand competition, lower prices, increase employee wages, protect union jobs and improve the customer shopping experience,” an Albertsons spokesman said.
COST OF GROCERIES
The deal has become a symbol of rising food costs. U.S. food prices have risen 25 percent over the past four years, and while food inflation shows signs of cooling in 2024, grocery bills remain a growing concern for shoppers.
The FTC sued along with attorneys general from eight states and the District of Columbia. Colorado, like Washington, sued to block the deal.
Kroger defended the deal, saying it would lower prices at Albertsons stores, where it said prices were 10-12% higher than its own. The combined company would fund the price cuts through savings it expects from a larger operation and a larger customer base to generate revenue for Kroger’s data consulting business.
Nelson, who was appointed by Biden to the federal bench in 2023, rejected those arguments, saying the effectiveness was not verifiable or specific to the deal. Kroger’s promises to invest in lower prices and better employee benefits will not be delivered, she wrote.
“Despite the best intentions of the defendants to fulfill their promises at this time, the business realities on the ground after the merger may change what the defendants can invest or what is in their best interest to invest,” she said.
The FTC also tried to block the deal on the theory that it would reduce competition for union labor in the food industry and reduce workers’ bargaining power.
The agency did not present enough evidence to prove that theory, the judge said, but added that the FTC presented a “compelling and logical case.”
If the deal went through, Kroger would own approximately 5,000 stores across the US. The companies argued at trial that they needed to merge to compete with global companies such as Walmart (NISE: ) and Amazon.com (NASDAQ: ).
Kroger and Albertsons said selling the 579 stores, particularly in western US states where Kroger and Albertsons are located nearby, would preserve competition.
Nelson disagreed, raising doubts that the proposed buyer, C&S Wholesale Grocers, could become a successful competitor.
Food workers’ unions criticized the merger, saying it would likely lead to job losses.
Six local members of the United Food and Commercial Workers Union, which represents more than 100,000 grocery store employees at both companies, called on the two to drop the deal and “return the focus to where it belongs: running grocery stores.”
