Kroger Albertsons merger called off as grocer couldn’t sell deal to government

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The Kroger Company (NYSE:KR) has seen some drama in the last couple of years, with its proposed merger with Albertsons Companies scuttled this month as it did not pass government scrutiny. The approximately $24 billion merger deal, initiated in October 2022, aimed at expanding Kroger’s reach into geographic regions where it does not have much of a presence (the grocery chain traces its rootsback to a Cincinnati store that its founder Barney Kroger opened in 1883).

In a media release at the time the merger was announced, Rodney McMullen, Kroger’s Chief Executive Officer, noted, "Albertsons Cos. brings a complementary footprint and operates in several parts of the country with very few or no Kroger stores. This merger advances our commitment to build a more equitable and sustainable food system by expanding our footprint into new geographies to serve more of America with fresh and affordable food and accelerates our position as a more compelling alternative to larger and non-union competitors. We believe this transaction will lead to faster and more profitable growth and generate greater returns for our shareholders."

While McMullen saw the deal as good for shareholders, the stock market did not respond favorably to the deal. The S&P 500 company’s stock price slid down from above $46 on October 13, 2022, the day before the merger announcement, to about $43 the day after. After starting 2024 at about $46, Kroger stock closed at about $62 on December 13, after the merger was called off earlier this week, implying that the stock market saw the deal’s falling apart as a positive development. Should investors get in on Kroger (a company in which Warren Buffett’s Berkshire Hathaway had an about 7% stake at the end of September)?

Regulatory authorities did not buy the grocery merger

Kroger’s Albertsons acquisition sounded a red flag for the Federal Trade Commission, which in February sued to block what the government agency saw as potentially “the largest proposed supermarket merger in U.S. history,” deeming it to be “anticompetitive.” A group of nine state attorneys general also joined the FTC in its legal action. While the two companies proposed a sale of hundreds of stores and other assets to C&S Wholesale Grocers, a smaller grocery chain, the FTC did not believe that these divestitures would make up for the reduced competition in the grocery space if the deal went through. The combined company would have had a 13% market share in the grocery market space.