Kroger-Albertsons To Form SpinCo As Senators Raise Merger Fears
The Kroger/Albertsons merger – unveiled on October 14 after news of the negotiations was leaked – would create a national supermarket behemoth, but the two companies will have to jump through legislative hoops to get there.
The combined company would have nearly 5,000 stores, 66 distribution centers, 52 manufacturing sites, 2,015 fuel centers and over 710,000 associates across 48 states and D.C.
But a number of politicians are yet to be convinced of the merger’s benefits.
Before any store divestitures insisted upon by legislators, the merged business would account for an estimated 19% of the U.S. grocery market, putting it second behind Walmart
The combined business would also become the nation’s fifth-largest retail pharmacy retailer, with 3,972 drug stores.
However, U.S. Minnesota Senator Amy Klobuchar, chair of the Senate Judiciary Subcommittee on Competition Policy, Antitrust and Consumer Rights, and Utah Senator Mike Lee said Tuesday that the subcommittee will convene a panel next month to scrutinize the $24.6 billion transaction.
In a statement, they said that the prospect of the country’s two biggest supermarket chains merging raises a raft of anti-trust issues for both shoppers and the grocery industry itself.
“As the chair and ranking member of the Subcommittee on Competition Policy, Antitrust and Consumer Rights, we have serious concerns about the proposed transaction between Kroger and Albertsons,” Klobuchar and Lee said in a joint statement.
“The grocery industry is essential, and we must ensure that it remains competitive so that American families can afford to put food on the table. We will hold a hearing focused on this proposed merger and the consequences consumers may face if this deal moves forward.”
U.S. Families Face Food Inflation
Along with other political representatives they said the proposed supermarket merger comes at a time when American families have already been stung by higher food pricing, up 13% compared with last year.
Indeed, the day of the merger announcement, Lee had expressed his concerns over one grocery retailer wielding so much market power when U.S. shoppers are struggling.
Klobuchar and Lee were joined by other sceptical politicians, including high profile Senators Bernie Sanders and Elizabeth Warren, who also expressed their reservations via Twitter and said the deal would likely raise grocery prices, herald job cuts and impact the supply chain.
Cincinnati-based Kroger contends that a merger with Albertsons would bring a number of advantages to shoppers and said: “We welcome the opportunity to outline how this transaction will benefit America’s consumers by expanding access to fresh, affordable food and establishing a more compelling alternative to large, non-union retailers.”
U.S. Supermarket Consolidation
The potential deal would reflect a further consolidation of America’s supermarket sector, following the 2015 merger of Albertsons and Safeway, which created a company with 2,230 stores, 27 distribution centers and 19 manufacturing sites covering over two-thirds of the country.
To counteract criticism, Kroger and Albertsons plan to form an Albertsons subsidiary dubbed SpinCo that would be spun off to Albertsons shareholders just before closing of the transaction and operate as a stand-alone public company.
With store divestitures expected, the retailers would work together to determine which locations would become part of SpinCo, estimating that it would comprise between 100 to 375 stores and create what they described as a “new, agile competitor.”
The regulatory review process for the Kroger/Albertsons merger could last more than a year, as the two companies will need to cooperate not just with each other but also with the Federal Trade Commission on how many stores are divested into SpinCo.