U.S. grocer Kroger carts away Albertsons for $25 bln but faces antitrust test

Oct 14 (Reuters) – Kroger Co (KR.N) acquired Albertsons Cos Inc. (ACI.N) in a $25 billion deal on Friday, creating an American grocery giant to better compete with leader Walmart Inc (WMT.N) on pricing while bracing for antitrust scrutiny.

The mega merger between the No. 1 and No. 2 autonomous grocers in the United States will bring together nearly 5,000 stores under one roof including banners such as Albertsons’ Safeway and Kroger-owned Ralphs and Fred Meyer.

The deal, however, could stifle competition and lead to higher prices for U.S. buyers already struggling with soaring inflation this year, some analysts said.

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To help ease those concerns, the companies have drawn up plans to divest some stores and Albertsons is ready to divest a stand-alone unit to its shareholders immediately before the deal with Kroger closes. It is estimated that the new public company will include up to 375 stores.

“We have a clear path to get regulatory approval for the divestitures,” company executives reassured on a conference call on Friday, adding that it was still too early to determine the markets in which the restructuring would take place. .

Neil Saunders, managing director of GlobalData Retail, said “These (concerns) are mostly local issues where a merger produces very high market share in certain areas. From a broader national perspective, a combination of Kroger and Albertsons does not pose a major threat to the competitive dynamics of the market.”

“Scale is necessary to deliver the prices and investments that consumers demand.”

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With a customer base of 85 million homes and 66 distribution centers, Kroger and Albertsons together would have an advantage in product price negotiations with suppliers, including consumer goods companies, at a time when product prices groceries and basic necessities are skyrocketing in the country.

Kroger said it plans to reinvest about half a billion dollars in cost savings from transaction synergies to lower prices for customers. An additional $1.3 billion will also be invested in Albertsons.

Market leader Walmart has doubled its own grocery business and has traditionally used its size to demand the lowest possible prices from food and drink suppliers, leaving rivals at a disadvantage in price negotiations.

“The merger will accelerate our position as a more compelling alternative to larger, non-union competitors,” Kroger chief executive Rodney McMullen said.

Kroger will pay $34.10 for each Albertsons share, representing a premium of about 33% to the stock’s closing price on Wednesday, a day before media reports of a deal between the of them. Read more

Shares of Albertsons were down about 6% in morning trading, after closing up 11% on Thursday, while shares of Kroger were down about 3%. Earlier today, Ahold Delhaize (AD.AS) Shares also jumped on news of a potential deal, with JP Morgan analysts saying a deal would boost the Dutch supermarket chain’s appeal for mergers and acquisitions.

Ohio-based Kroger plans to fund the deal using a combination of cash and proceeds from a $17.4 billion debt financing in place with Citi and Wells Fargo. He is also expected to pay Albertsons $600 million if the deal is terminated.

After the deal closes, which is expected in early 2024, Kroger CEO McMullen will continue to lead the combined company.

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Reporting by Aishwarya Venugopal and Mehr Bedi; Additional reporting by Deborah Sophia and Nivedita Balu in Bengaluru; Editing by Devika Syamnath and Sriraj Kalluvila

Our standards: The Thomson Reuters Trust Principles.

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