DealLawyers.com Blog

Just about 16 months after Kroger’s proposed acquisition of Albertsons was announced, the deal finally ended up where almost everybody assumed it would – being challenged in court by the FTC.  Yesterday, the FTC announced that it had issued an administrative complaint and authorized a lawsuit in federal court to block the deal pending the FTC’s administrative proceedings.

Kroger & Albertson’s highlighted a proposed divestiture plan intended to address antitrust concerns in their initial announcement of the deal. Since then, they’ve continued to tout the virtues of that divestiture plan, but this excerpt from the FTC’s press release on its decision to authorize the lawsuit indicates that the agency isn’t impressed:

To try to secure antitrust approval of their merger, Kroger and Albertsons have proposed to divest several hundred stores and select other assets to C&S Wholesale Grocers (C&S), which today operates just 23 supermarkets and a single retail pharmacy. The FTC’s administrative complaint alleges that Kroger and Albertsons’s inadequate divestiture proposal is a hodgepodge of unconnected stores, banners, brands, and other assets that Kroger’s antitrust lawyers have cobbled together and falls far short of mitigating the lost competition between Kroger and Albertsons.

The FTC says the proposed divestitures are not a standalone business, and 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 proposal completely ignores many affected regional and local markets where Kroger and Albertsons compete today. In areas where there are divestitures, the proposal fails to include all of the assets, resources, and capabilities that C&S would need to replicate the competitive intensity that exists today between Kroger and Albertsons. Even if C&S were to survive as an operator, Kroger and Albertsons’s proposed divestitures still do not solve the multitude of competitive issues created by the proposed acquisition, according to the complaint.

Whether a federal court will share the FTC’s skepticism toward Kroger & Albertsons divestiture plan remains to be seen.  Courts have been more sympathetic to the kind of “fix-it -first” strategies embodied by the proposed divestiture plan than the DOJ & FTC have been. Maybe the most notable example of that came last summer, when a California federal court refused to block Microsoft’s acquisition of Activision/Blizzard based in part on the strength of commitments made by Microsoft to assure that competing platforms would continue to have access to its “Call of Duty” video game franchise.

– John Jenkins