Grocery giants Kroger and Albertsons Cos. agreed to divest more than 160 additional stores — for a new price of $2.9 billion — as they try to address the concerns of federal regulators blocking the chains’ $24.6 billion merger.
Kroger, the nation’s biggest supermarket operator, and Albertsons, the second largest and headquartered in Boise, Idaho, on Monday said they had amended and expanded their deal to sell some of their stores to C&S Wholesale Grocers. The updated divestiture deal increases the total number of stores that C&S is acquiring by 166, to 579. In the prior arrangement, unveiled in September, C&S would have paid about $1.9 billion for roughly 400 Kroger and Albertsons stores.
Kroger, based in Cincinnati, and Albertsons said the sale as posed now, with the additional stores, aims to address the antitrust concerns voiced by the Federal Trade Commission, when in February it filed suit to stop their merger. The FTC had charged that the deal with C&W was an “inadequate divestiture offering” that was “a hodgepodge of unconnected stores, banners, brands, and their assets that Kroger’s antitrust lawyers have cobbled together,” falling “short of mitigating the lost competition between Kroger and Albertsons.”
Kroger and Albertsons said their new agreement with Keene, New Hampshire-based C&S will extend a competitor to new geographies through the sale of stores to a well-capitalized buyer; ensure that no stores will close as a result of the merger; and maintain all current collective bargaining agreements and ensure front line workers keep their jobs. They added that they remain committed to defending their merger, announced in October 2022, in court.
The stores included in the new divestiture plan by geography are:
- Washington, 124 Albertsons and Kroger stores.
- California, 63 Albertsons stores.
- Colorado, 91 Albertsons stores.
- Oregon, 62 Albertsons and Kroger stores.
- Texas/Louisiana, 30 Albertsons stores.
- Arizona, 101 Albertsons stores.
- Nevada, 16 Albertsons stores.
- Illinois, 35 Albertsons and Kroger stores.
- Arkansas, 18 Albertsons stores.
- Idaho, 10 Albertsons stores.
- New Mexico, nine Albertsons stores.
- Montana/Utah/Wyoming, 11 Albertsons stores.
- Washington, D.C./Maryland/Virginia/Delaware, nine Harris Teeter stores.
At least one Wall Street analyst said he doesn’t think the expanded list of stores for sale will satisfy the FTC.
"While this revised divestiture package helps address market-overlap issues in certain markets, it still doesn't address the FTC's concern that C&S Wholesale Grocers does not have the necessary expertise to operate a grocery network of this size, as C&S is predominantly a distributor, with just 23 retail supermarkets today and a single retail pharmacy," Arun Sundaram, vice president and senior equity analyst at CFRA Research, wrote in a note.
In addition to the additional stores being conveyed to C&S, the updated divestiture package includes “increased distribution capacity through a combination of different and larger facilities as well as expanded transition services agreements to support C&S and the addition of one dairy facility,” according to Kroger and Albertsons.
The amended sale agreement also expands the corporate and office infrastructure provided to C&S, given the increased store set, “to ensure C&S can continue to operate the divested stores competitively and cohesively,” Kroger and Albertsons said. All fuel centers and pharmacies associated with the divested stores will remain with the stores and continue to operate.
The amended agreement maintains the divestiture of private label brands Debi Lilly Design, Primo Taglio, Open Nature, ReadyMeals and Waterfront Bistro to C&S. The revised agreement also provides C&S with access to the Signature and O Organics private label brands.