Kroger on Friday announced plans to buy Albertsons in a nearly $25 billion deal that could change the retail industry in the United States and impact the way millions of customers buy their groceries.
The deal, which is expected to close in 2024, would combine two of the country’s largest supermarket chains and create one of its largest private employers. The two companies have a total of 710,000 workers — most unionized in an industry with low union density — nearly 5,000 stores and more than $200 billion in sales.
The retail industry has consolidated in recent years and the merger would give the companies greater scale to fend off competition from Amazon (AMZN), Walmart (WMT) and other retail giants.
The merger “accelerates our position as a more compelling alternative to larger, non-union competitors,” Kroger CEO Rodney McMullen said in a statement Friday.
The move also comes as companies struggle with rising costs and food inflation hits its highest level in decades. Prices at grocery stores continued to climb last month. The Food at Home Index, an indicator of grocery store prices, rose 0.7% in September from the previous month and 13% over the past year.
“The combined company could be more productive and profitable than either individually,” Joseph Feldman, retail analyst at Telsey Advisory Group, said in a note to clients on Friday. Expanding into new geographies, growing new businesses and combining technology and supply chains could fuel growth, he said.
Kroger (KR) will buy Albertsons for $34.10 a share, a premium of about 30% above the grocery chain’s average share price over the past month. Shares of Kroger (KR) slipped 2% in premarket trading, while Albertsons climbed more than 11%.
The companies said they would set up nearly 400 stores to form the new rival in a bid to win antitrust clearance.
But analysts say it will be a significant hurdle in getting past the antitrust hurdle.
“A deal of this size that directly impacts consumers would be subject to intense scrutiny by regulators and would take a long time to get approved,” Feldman said.
Consumer watchdogs, unions and Democrats have already spoken out strongly against the deal.
Senator Bernie Sanders called him a “absolute disaster” and called on the Biden administration to reject the deal. The American Economic Liberties Project, an anti-monopoly organization, said “the merger would be disastrous for market competition, small businesses and most importantly – consumer pockets.”
FTC Chair Lina Khan is critical of corporate consolidation and the regulator has blocked major retail mergers in the past, including attempts by Staples to combine with Office Depot.
The FTC is currently investigating anticompetitive practices in the grocery industry and last year requested information from Kroger and others about the causes of empty shelves and soaring prices in the United States.