The largest proposed merger in the history of grocery stores in the United States is now heading to court. Supermarket chains Kroger and Albertsons are eager to join forces, claiming that the merger will boost their competitiveness against rivals such as Costco. However, antitrust regulators from the Federal Trade Commission (FTC) hold a different view, arguing that the merger would stifle competition and lead to increased grocery prices during a period of already high food price inflation.

Starting from Monday, a federal district court judge in Portland, Oregon, will carefully consider both sides of the argument and determine whether to grant the FTC's request for a preliminary injunction. Should the injunction be granted, the merger would be temporarily delayed while the FTC conducts an internal case against the deal before an administrative law judge.

Kroger, based in Cincinnati, Ohio, operates an impressive network of 2,800 stores across 35 states, including well-known brands like Ralphs, Smith's, and Harris Teeter. Albertsons, hailing from Boise, Idaho, operates 2,273 stores in 34 states, which include renowned names like Safeway, Jewel Osco, and Shaw's. When combined, these two grocery giants would employ around 710,000 individuals.

In light of the upcoming hearing, scheduled to continue until September 13, it is important to understand the motivations behind this proposed merger. Kroger and Albertsons first announced their plans to merge in October 2022, unveiling a staggering $24.6 billion deal. The companies assert that this merger would effectively keep grocery prices in check by granting them additional leverage with suppliers and enabling the consolidation of their respective store brands. Furthermore, they argue that the merger is necessary to create a stronger stand against formidable competitors such as Walmart, which currently controls approximately 22% of U.S. grocery sales, compared to the combined 13% under Kroger and Albertsons.

Nonetheless, the FTC is determined to block this mega-merger, citing concerns over diminished competition and the subsequent ramifications. In February, the FTC filed a complaint seeking to halt the merger before an administrative judge within the FTC itself. Simultaneously, the FTC filed a lawsuit in a federal court in Oregon in pursuit of a preliminary injunction. The federal lawsuit includes the attorneys general of several states, including Arizona, California, the District of Columbia, Illinois, Maryland, Nevada, New Mexico, Oregon, and Wyoming.

One pressing question that arises is whether Kroger and Albertsons intend to close any stores if the merger is approved. Both companies have reassured that this will not be the case. As part of the merger agreement, Kroger and Albertsons have committed to sell 579 stores in locations where their existing stores overlap. The buyer of these stores would be C&S Wholesale Grocers, a New Hampshire-based supplier that also owns the Grand Union and Piggly Wiggly store brands. Originally, Kroger and Albertsons planned to divest 413 stores, but the FTC expressed concerns that this would not create a robust enough competitor in the market. As a result, additional stores were added to the divestment agreement in April. Notably, the highest number of stores to be divested would be in Washington, with 124, followed by Colorado with 91 and California with 63.

If the Oregon judge rules in favor of the FTC and grants the preliminary injunction, Kroger and Albertsons are expected to appeal to a higher court. According to legal experts, the case could then proceed through the FTC's own judicial system. However, due to the lengthy duration of this process (often taking a year or more), many companies choose to abandon the merger before it reaches the administrative judge stage. In fact, earlier this month, Kroger took legal action against the FTC, arguing that the agency's internal proceedings are unconstitutional and demanding that the merits of the merger be decided in federal court. In their argument, Kroger pointed to a recent Supreme Court ruling that limited the SEC's power to handle some civil fraud complaints internally rather than in a court of law.

Should the Oregon judge side with Kroger and Albertsons, it is anticipated that the FTC would appeal the ruling. Nevertheless, legal experts suggest that it is rare for an appeals court to overturn a lower court's ruling on a merger. As for the impact of the presidential election on the proceedings, it remains uncertain. While the Biden administration has shown staunch opposition to mergers deemed anti-competitive, lawmakers from both the Democratic and Republican parties expressed skepticism towards this particular merger during a hearing in 2022.

Interestingly, two states, Colorado and Washington, have independently filed lawsuits in state courts to block the merger. This is an unusual circumstance, as typically states act as co-plaintiffs in federal lawsuits. However, both states believe they have significant stakes in this matter, with Colorado housing over 200 Kroger and Albertsons stores, and Washington boasting more than 300. If the FTC's case fails, experts believe that both states could seek their own injunctions from another court. However, if Kroger and Albertsons emerge victorious in the federal case, it is unlikely that another court would move to block the merger.

As the court battle begins, the future of this proposed grocery store merger hangs in the balance. Stay tuned for updates as the case unfolds and the judge in Oregon weighs the arguments put forth by Kroger, Albertsons, and the Federal Trade Commission.