The FTC has entered the fray, will they Shake Up the Deal?

Under the chairmanship of Lina Khan, the Federal Trade Commission (“FTC”) has taken a hard stance against what Khan describes as anti-competition mergers. The agency has taken a keen eye on reviving the mantra of trust-busting, where the federal government emphasizes its role in preventing monopolies. In her term as Chair of the FTC, Khan has put “corporate America on alert” by rolling back the “hands-off” government approach to business and aggressively investigating big business. Because of this stance, there have been active investigations leading over half of this year’s Q1 and Q2 investigated mergers to be abandoned. A high-profile acquisition investigation that could have implications on the 2024 election happens to be the largest supermarket deal in history: Kroger Company acquiring Albertsons Company, Inc.

According to the FTC, the charges were filed against the $24.6 billion acquisition, to prevent “eliminat[ing] fierce competition between Kroger and Albertsons, leading to higher prices for groceries[.]” These two supermarkets have historically competed against one another in 22 states. Kroger CEO Rodney McMullen and Albertsons CEO Vivek Sankaran have fought back against the FTC’s charges as well as multiple state cases.

Rebutting the FTC argument, Kroger and Albertsons have highlighted the change in the market as their main argument. Companies like Walmart have grown their share of the grocery market from $63 billion in 2003 to a staggering $247 billion in 2023; Costco has grown its share of the grocery market, grossing a 400% increase in sales in the same period. McMullan’s watershed moment in seeking to meet the competition was Amazon’s acquisition of Whole Foods, a deal which prompted McMullan to keep a Cincinnati Business Courier article on his desk titled “How Amazon is crashing Kroger’s Party.” The merger would bring this supermarket combo into competition with companies like Walmart, Costco, and Amazon.

McMullen also has testified to the European-based stores of Aldi and Lidl overtaking 50% of the market share of grocery stores in the U.S., offering lower prices than Kroger or Albertsons. By combining the two supermarkets, McMullen says that Kroger would be able to match “Aldi on price and Amazon’s e-commerce prowess.” The deal would give Kroger the ability to compete with the narrowing grocery market, empowering a new competitor to Amazon, Costco, and Walmart megastores while driving lower prices from these stores in competition with Aldi and Lidl. This deal is not meant to drive down competition, but to allow for a bigger competitor to the megastores who are monopolizing the grocery market.

As CEO, McMullen seeks to bring a competitive spirit to the business because, according to him, “We keep doing what we are doing, [Kroger] would go out of business[.]” In keeping with this spirit, McMullen says the merger would allow for the company to reinvest $1 billion in lower prices at the Albertson’s stores. In contrast, Albertson’s CEO argues that if the merger falls through, he will likely have to either lay off workers or consider shuttering locations. Both CEOs are committed to the “zero-sum game” of the grocery market; retaining the ability to be competitive while promoting customer value. The merger deal also includes a plan to sell 579 stores to C&S Wholesale Grocers to keep competing stores open in cities where Kroger and Albertsons currently overlap.

This merger would be the largest of its type and aims to compete with megastores and European low-cost grocers while investing more money back into the business model, lowering prices, and retaining ongoing competition by selling off extraneous stores. Still, this deal likely will be fought till the bitter end by the FTC, with “analysts at the Bank of Montreal . . . forecast[ing] a 70% likelihood that the deal is blocked.”

With the investigation into the proposed deal between Kroger and Albertsons, it is important to understand how the FTC is keeping its aggressive stance against mergers. The Dechert Antitrust Merger Investigation Timing Tracker (DAMITT) illustrates the pickup in merger enforcement activity. While the enforcement is slightly below average for the first half of 2023, of the eleven significant merger investigations during Q1 and Q2, over fifty percent of these investigations ended in an abandonment of the merger. DAMITT is only one indicator of an increased impact that the FTC is having on merger activity but illustrates that when the current FTC gets in the fray, they tend to shake up the deal. This high-profile investigation has a potential impact on the election in November between Former President Donald Trump and Vice President Kamala Harris.

The Biden Administration’s FTC has sought to increase antitrust enforcement, and Vice President Harris has “hired two advisors to her campaign that were closely tied to Biden’s aggressive antitrust approach, [signaling] that she is likely to pursue a similar track if elected.” On the other hand, former President Trump has shown that he favors an easement of oversight from the FTC. Both former President Trump and Vice President Harris have espoused their commitment to lowering grocery prices. These campaigns will likely continue highlighting wages, prices, and even antitrust investigations.

Khan, with her term coming to a close, is campaigning with high-profile progressives across the U.S. She has appeared with Senator Bernie Sanders, Representatives Greg Casar, Raja Krishnamoorthi, and Mark Pocan, and Arizona candidate for U.S. Senate, Ruben Gallego. Khan has a particular appeal to younger voters who enjoy the FTC’s “lawsuit after lawsuit” approach on big business, appealing to both progressives and conservatives (dubbed “Khan-servatives”). In our hyper-partisan era of politics, Khan seems to be working with progressives across the nation to fight for a potential renomination.

As state cases carry on across the country, hearings take place at the FTC, and the public weighs in during a tumultuous election cycle, the Kroger-Albertsons deal will likely remain a perpetual part of our news through the end of the year.

Joseph W. Buckner is a second-year law student pursuing a JD/MBA at Wake Forest University. He holds a B.A. in Public Policy and Political Science from the University of North Carolina at Chapel Hill.

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