November 2022 | Volume 14, Issue 4

Read the full article on USA Today

According to the article, look out Walmart: In a $24.6 billion deal, grocery store giant Kroger will take over rival Albertsons, creating a supermarket giant.

The combined sales would be nearly $210 billion − about $10 billion shy of U.S. food sales of the world's largest grocer Walmart. The combined new company is expected to divest 100 to 375 stores to mollify anti-trust concerns of regulators. That will leave Cincinnati-based Kroger with more than 4,500 stores and operations in more than a dozen new states. Divested stores will be spun out into separate companies that will be owned by current Albertson's investors.

Together, both stores currently employ more than 710,000 associates and operate 4,996 stores, 66 distribution centers, 52 manufacturing plants, 3,972 pharmacies, and 2,015 fuel centers in 48 states and Washington D.C.

Under the merger, Rodney McMullen, chairman, and CEO of Kroger will continue in his role for the combined company.

"We are bringing together two purpose-driven organizations to deliver superior value to customers, associates, communities, and shareholders," McMullen said in a release.

Shares of Albertsons jumped more than 11 percent immediately after reports of the merger, while Kroger’s stock dropped about 2 percent. 

The merger would make a combined chain with a market valuation of about $47 billion and would be one of the biggest in recent years in retail, Reuters reported.

The news of the potential deal arrives as grocers are struggling with runaway inflation and supply chain disruptions after the pandemic.

Discussion Questions

1. Is this a merger or an acquisition? What is the difference between a merger and an acquisition?

In terms of the technical difference between a merger and an acquisition, a merger is the combining of two organizations into an entirely new entity, while an acquisition is when a company absorbs another, but no new organization is created. The terms of the deal look more like a friendly acquisition (since the Kroger business entity is “absorbing” the Albertson’s business entity), but regardless of whether this is coined as a merger or an acquisition, the effect will be the same: To create an industry giant that will have greater competitive standing against the world’s largest grocer, Walmart.

2. Are there antitrust issues in this case? Why or why not?

Although there are antitrust issues in this case (more specifically, the decreased competition in the grocery sector resulting from the combination), in your author’s opinion the combination will survive government scrutiny. Note that even after the combination, the combined sales of Kroger/Albertsons are still projected to be about $10 billion short of U.S. food sales of Walmart. Also note from the article that the combined new company is expected to divest 100 to 375 stores to appease antitrust concerns of government regulators. Finally, notice in the press release noted below that Kroger is emphasizing lower prices for consumers resulting from the merger—a regular concern of government regulators is that decreased competition in an industry resulting from a merger or acquisition would have the opposite effect of increasing prices for consumers.

3. Why would two competitive rivals such as Kroger’s and Albertsons combine forces?

The answer to this question is clear—By combining forces, the resulting company will have greater control over its standing in the market, including greater ability to “take on Number 1”—Walmart.