Real Estate

Albertsons to Sell 63 CA Stores for $2.9B Ahead of $25B Kroger Merger Trial

Kroger and Albertsons to sell 63 California stores as part of $2.9 billion divestiture ahead of $25 billion merger trial.

By Tal Alexander

7/11, 11:03 EDT
Albertsons Companies, Inc.
Kroger Company

Key Takeaway

  • Albertsons is selling 63 California supermarkets to C&S Wholesale Grocers for $2.9 billion ahead of its $25 billion merger with Kroger.
  • The FTC's complaint argues the merger could harm competition, affect prices and quality, and negatively impact worker wages and benefits.
  • Union workers are protesting the merger, fearing job losses; the trial to decide the deal's future is expected in August.

Kroger and Albertsons' Strategic Divestiture

In a significant move to secure regulatory approval for their proposed $25 billion merger, Kroger and Albertsons have announced the sale of 63 supermarkets in California. This divestiture is part of a larger package involving 579 stores across the United States, which will be sold to C&S Wholesale Grocers for $2.9 billion. The list of stores includes prominent Albertsons brands such as Vons and Pavilions, with a concentration in Southern California. This strategic sale is aimed at addressing antitrust concerns ahead of a crucial trial set for August, which will determine the future of the merger.

Details of the Divestiture

The divestiture package includes 15 Albertsons, 31 Vons, and 10 Pavilions stores in California, among others. The transaction also encompasses distribution centers and plants, with C&S Wholesale Grocers committing to maintain current pay, health plans, and collective bargaining agreements for the affected employees. This move is designed to mitigate the Federal Trade Commission's (FTC) concerns about reduced competition and potential negative impacts on consumers and workers. The companies have pledged significant investments to enhance store quality and worker benefits, including $500 million to cut prices and $1 billion to raise wages.

Market Dynamics and Regulatory Challenges

The proposed merger between Kroger and Albertsons is driven by the need to compete with larger, non-unionized rivals such as Amazon, Walmart, and Costco. Together, Kroger and Albertsons operate nearly 5,000 stores nationwide. However, the FTC has raised concerns that the merger could harm consumers by reducing competition, leading to higher prices and lower-quality products. The FTC also questions the viability of C&S Wholesale Grocers in managing the acquired stores, citing past failures such as the bankruptcy of Haggen Holdings after a similar divestiture.

Broader Implications for the Grocery Sector

The divestiture and pending merger highlight the intense competition and consolidation trends within the grocery sector. The merger aims to create a stronger entity capable of competing with retail giants, but it also raises significant antitrust issues. Union workers have expressed concerns about job security and potential negative impacts on wages and benefits. The outcome of the trial will have far-reaching implications for the grocery industry, potentially setting precedents for future mergers and acquisitions.