The financial analysis service Seeking Alpha is out with an assessment of the prospects that the Federal Trade Commission (FTC) will approve Kroger's proposed $24.6 billion acquisition of Albertsons.
In short, Seeking Alpha is dubious, at least in part because of ongoing comparisons of the proposed divestiture of more than 400 stores to C&S Wholesale Grocers to the unsuccessful sale of well over 100 stores to Haggen when Safeway and Albertsons merged in 2015.
"The recent announcement that Kroger and Albertsons would collectively sell more than 400 of their stores to C & S Wholesalers have contributed to sanguine aspirations Federal Trade Commission Chair Lina Khan will ultimately approve the merger of the two grocery giants.
"First, Khan is already skeptical of such divestitures in pursuit of mergers and even wrote a law review article in the Harvard Law and Policy Review of the Albertsons and Safeway merger of 2015 that could be somewhat analogous to the Kroger/Albertsons merger.
"Writing about the merger in 2017, then- Professor Khan and her co-author wrote in the Harvard Law & Policy Review, 'To allay the FTC’s concerns, the merging entities sold 146 Albertsons stores in towns and cities in the Western United States, where they competed with a Safeway, to a small supermarket chain called Haggen. Following this acquisition, the number of Haggen stores increased from 18 to 164. Even a casual observer could have predicted that Haggen would have great difficulty expanding its storefronts nearly ten-fold in a very short period of time. The skeptics have been proven right. Haggen struggled to integrate the new stores and, despite its reorganization efforts in bankruptcy, may be forced to liquidate. Underscoring how the remedy backfired, Albertsons has reacquired a number of the stores it sold through the bankruptcy process'."
Noting that C&S only has about 160 (owned and franchised) stores, Seeking Alpha writes that "adding 413 retail grocery stores to such a small chain - with a requirement to purchase up to an additional 237 stores … should the FTC require it - should give the FTC pause, given the 2015 Haggen experience."
In addition, the analysis says, "the merger will likely create a monopsony, or single buyer, in the market for grocery workers in many markets … Grocery workers are among the lowest paid workers in the country, earning, on average, well below the poverty line for a family of four. Monopsony can only have a further deleterious effect on grocery workers' wages in small towns and so-called 'food deserts' in urban areas that both have limited grocery shopping - and employment - options."
Not to mention, Seeking Alpha writes, the current national election cycle, which could create political pressures to oppose a deal seen (by some) as being anti-employee and pro-big business. Economic inequality will be much-discussed, and a merger like this could be seen as the poster child for the phenomenon.
Seeking Alpha points out that "Kroger and Albertsons have said they will pursue the merger through the courts, but that would take several months and, perhaps, even years," but it remains convinced that "this merger is dead."
- KC's View:
Interestingly, Seeking Alpha seems to believe that the best way to make this work is what Kroger and Albertsons called the SpinCo option, in which a new economic entity is created.
I'm not sure I agree.
While I've been saying all along that I think the FTC will oppose the deal and that it will only be through the courts that Kroger and Albertsons will get across the finish line, I don't think it is fair to lump C&S and Haggen together. I was one of those "casual observers" who never thought Haggen could digest and metabolize 146 new stores - it was having enough trouble running the 18 stores it had. C&S, on the other hand, is considerably bigger, and has significant resources and the technological expertise to make this work. It'll take effort, but I think C&S is far better positioned than Haggen was.