Albertsons-Kroger deal may need to expand divestment package

Breaking News 31 March

Albertsons-Kroger deal may need to expand divestment package

Albertsons [NYSE:ACI] and Kroger [NYSE:KR] may have to expand the number of stores in their divestment package in their bid to secure antitrust clearance of their USD 24.6bn merger, to two sources familiar with the situation told Dealreporter.

The grocery store operators kicked off the sale process for a portion of their combined stores in February. The number of stores being shopped is 250-300, according to the two sources and a third source familiar with the situation.  

The first two sources said, however, that this number could increase, with one of them describing this as the “starting point”.  

The merging parties announced plans to combine on 14 October 2022. In a 14 March filing, they reiterated their planned store sales to secure regulatory approvals, noting a divestiture cap of 650 stores.  

A spokesperson for Albertsons said it is hard to know how many stores the Federal Trade Commission (FTC) will require. Kroger declined to comment.    

The number of stores up for sale can easily go higher, said Taylor Ricketts of Creditntell-F&D Reports, a consulting company specializing in credit solutions to manufacturers and wholesalers/distributors operating in all food and drug channels of distribution.  There is significant overlap between the companies, he pointed out.    

Albertsons maintains a number one or two position in terms of grocery store market share in 68% of the 121 metropolitan statistical areas in which it operates, according to Creditnetell-F&D Reports analysis.  

About 48% of Albertsons store base (2,273 as of 18 June 2022) is located within three miles of a Kroger store, Ricketts explained. Looking at a five-miles radius, the overlap is more considerable, with some 57% of Albertsons store base located in proximity to a Kroger store.    

An independent antitrust attorney who has done several deals in the grocery, dairy, and consumer packaged food spaces, said the merging parties should have received some informal feedback from the FTC that the 250-300 stores divestment is adequate. Ninety percent of the time there are assurances, this attorney said.  

It will all come down to the market definition, the independent attorney said.

While Kroger and Albertsons are the number one and two grocery store chains respectively, when superstores, dollar stores, and membership warehouse chains are taken into account, it changes the landscape considerably.

The FTC will have to include players like Walmart [NYSE:WMT], the attorney said. While Walmart is not classified as a grocery store, it is the biggest retailer of food and does directly compete with Kroger/Albertsons, he pointed out.  

The merger will give the companies increased scale to further compete against Walmart allowing the new company to reduce product costs in areas like purchasing, he said.    

The FTC will also find it must include dollar stores in its market definition, according to the first source. Small towns across the US are not granting zoning to dollar stores like Dollar General [NYSE:DG] and Dollar Tree [NASDAQ:DLTR] because they don’t want the competition to impact local grocers, the source explained.    

The FTC has expanded its review looking into things like consumer package goods companies and how much they sell to Albertsons and Kroger, the first source said.    

Meanwhile, the parties are seeing robust interest in their store divestitures, according to the three sources familiar with the matter.    

The list of potential buyers includes Ahold Delhaize [AMS: AD], Amazon’s [NASDAQ: AMZN] Whole Foods, Dollar General, several regional players, and a number of Hispanic grocers such as Bodega Latino and Cardenas Market, according to Ricketts and the independent attorney.    

The stores will be sold to multiple buyers, the sources familiar said.      

Ahold and Amazon declined to comment. Dollar General did not respond to requests for comment.

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