The U.S. Federal Trade Commission (FTC), alongside eight states, filed a lawsuit on Monday to halt Kroger Co .'s (NYSE:KR) proposed $24.6 billion acquisition of Albertsons Cos. Inc. (NYSE:ACI).
The regulatory bodies argue that the merger, which aims to unite over 4,000 stores, could lead to higher grocery prices for millions of Americans, at a time when food costs have already increased by 25% over the past four years.
“This supermarket mega-merger comes as American consumers have seen the cost of groceries rise steadily over the past few years. Kroger’s acquisition of Albertsons would lead to additional grocery price hikes for everyday goods," said the director of the FTC’s Bureau of Competition.
Shares of Kroger fell 1.7% on Monday while ACI rose 0.5%.
Despite signs of easing food inflation in 2024, the growing concern over grocery expenses has been magnified by the potential market consolidation. If approved, the deal would position Kroger to become the second-largest grocery entity in the U.S., trailing only behind Walmart (NYSE:WMT)
The FTC's legal action reflects the Biden administration's broader campaign to suppress inflationary pressures in essential consumer sectors, including groceries, pharmaceuticals, and air travel, by scrutinizing and opposing major mergers and acquisitions.
Following the lawsuit's announcement, the White House reiterated President Joe Biden's stance on the importance of maintaining competitive markets to prevent domination by large corporations.
In defense, Kroger has responded to the antitrust regulator’s allegations by highlighting its consistent record of price reductions since 2003, promising to extend its cost-cutting strategies to the combined entity should the merger proceed.
“Contrary to the FTC's statements, blocking Kroger's merger with Albertsons Companies will actually harm the very people the FTC purports to serve: America's consumers and workers,” the supermarket operator said in a statement.
“In fact, this decision only strengthens larger, non-unionized retailers like Walmart, Costco and Amazon by allowing them to further increase their overwhelming and growing dominance of the grocery industry,” it added.
The FTC is seeking an injunction from a U.S. District Court in Oregon to temporarily block the merger. This decision is to allow for a comprehensive review of the transaction by an administrative judge, following the initiation of an administrative proceeding by the commission on Monday.
Together, Kroger and Albertsons employ approximately 710,000 individuals, operate nearly 5,000 stores, and generate over $200 billion in annual sales.