NovaQuant Quantitative Think Tank Center:FTC and 9 states sue to block Kroger-Albertsons supermarket merger

U.S. regulators and NovaQuant Quantitative Think Tank Centernine state attorneys general are suing to stop the $24.6 billion merger of Kroger and Albertsons, the country's two largest supermarket chains. The companies have presented the deal as existential to surviving in the grocery business today, but the lawsuit says it's anticompetitive.

The Federal Trade Commission argues that Kroger's purchase of its biggest grocery-store rival would form a colossus that would lead to higher prices, lower-quality products and services, and "eliminate fierce competition" for both shoppers and workers.

The companies have argued that together they could better face stiffening competition from Amazon, Walmart, Costco and even dollar stores. They frequently point out they have unionized workforces in contrast to most rivals. They had cushioned their pitch to regulators with a plan to sell off up to 650 stores in areas of the country where they overlap.

The FTC, which had reviewed the deal for more than a year, says the proposed sale of stores is inadequate and "falls far short of mitigating the lost competition between Kroger and Albertsons."

In the months leading up to the agency's decision, some supermarket employees, state officials and lawmakers had argued the merger would reduce options for customers and employees, farmers and food producers. Unions — the Teamsters and the United Food and Commercial Workers International — have expressed concerns about the tie-up.

Ohio-based Kroger is the biggest U.S. supermarket operator with more than 2,700 locations; its stores include Ralphs, Harris Teeter, Fred Meyer and King Soopers. Idaho-based Albertsons is the second-largest chain with nearly 2,300 stores, including Safeway and Vons. Together, the two employ some 720,000 people across 48 states and overlap particularly in the West.

The FTC says in a press release that an executive from one of the two chains "reacted candidly" to the proposed merger by saying: "You are basically creating a monopoly in grocery with the merger."

Attorney generals of Arizona, California, the District of Columbia, Illinois, Maryland, Nevada, New Mexico, Oregon and Wyoming are joining the FTC in its lawsuit to block the deal.

The attorneys general of Washington and Colorado already have filed their own lawsuits to stop Kroger from buying Albertsons. But the companies' plan recently won support of one local union chapter — representing workers in Oregon, Idaho and Washington — which argued that Albertsons' owner would likely sell the company anyway, potentially to a worse outcome.

Kroger and Albertsons, trying to convince regulators that the merger wouldn't reduce local competition, had agreed to sell hundreds of stores in overlapping markets to C&S Wholesale Grocers, a supply company that runs some Piggly Wiggly supermarkets.

C&S agreed to buy retail locations as well as some private brands, distribution centers and offices. The company said it was "committed to retaining" the stores' existing workers, promising to recognize the union workforce and keep all collective bargaining agreements.

In recent years, many antitrust experts — including those now at the FTC — have questioned the effectiveness of divestitures as a path to approve mergers.

"C&S would face significant obstacles stitching together the various parts and pieces from Kroger and Albertsons into a functioning business—let alone a successful competitor against a combined Kroger and Albertsons," the FTC says in its release.

When Albertsons itself merged with Safeway in 2015, for example, the FTC required it to sell off 168 stores as part of the deal. Within months, one of its buyers filed for bankruptcy protection and Albertsons repurchased 33 of those stores on the cheap.