The Kroger Co. and Albertsons Companies Inc are still on track to divest 250 to 300 stores as part of their effort to dispel antitrust issues regarding their proposed merger plan.
The stores slated for sale are valued at USD 1B or above, and are located all across different regions of the US—such as Chicago, Phoenix, Southern California, and the Pacific Northwest—reported Reuters, citing unnamed sources.
Kroger-Albertsons Cos. Merger Deal
In a move to reshape the U.S. supermarket landscape, Kroger and Albertsons Cos.—The US’s two biggest grocery store chains—announced plans to join forces in mid-October.
The retailers hope that this merger, if approved by regulators, would help create a corporate behemoth generating around $200 billion in sales per year.
Combined, Kroger and Albertsons Cos. would operate around 5,000 stores across the country.
Reasons Behind the Divestiture
The retailers have decided to prepare for the store divestiture as the Federal Trade Commission (FTC) is reassessing Kroger’s proposed USD $24.6B investment in Albertsons Cos.
Since the retailers declared the merger strategy, there has been a flurry of movements from American consumer advocates and lawmakers against it.
They are pressuring the FTC to hit the brakes on the deal, or at least hold it for some time, over concerns that this merger, if executed, could cause significant hikes in grocery prices amid the current spiralling inflation rates.
While declaring their merger, the retailers stated that the plan was to sell around 100 to 375 stores to win regulatory approval faster. However, Kroger mentioned that up to 650 stores could be divested.
As per the agreement, if the deal falls apart over antitrust issues, Kroger would be required to pay Albertsons Cos. $600M as a breakup fee to walk away from the contract.
The retailers are trying to sound out long-sought buyers for their stores and address the antitrust issue of FTC over their merging.
Both Kroger and Albertsons Cos. expect these stores to be spun off into a subsidiary dubbed SpinCo by Albertsons Cos. or directly acquired by competitor supermarkets trying to extend their footprint in the USA.
FTC to Monitor the Financial Viability of the Stores Divested
FTC will closely monitor any sale of the stores coming from this divestment, reported Reuters, citing antitrust experts at FTC.
The current FTC chair Lina Khan marked the failed AlbertsonsCos./Safeway settlement behind FTC’s scepticism about the Kroger-Albertsons deal.
The result: The agency is strictly scrutinising the potential impact of the Kroger–Albertsons merger deal.
Navigating Divestiture Challenges to Success
Brian Concklin, an antitrust expert and partner at global law firm Clifford Chance has advised Kroger and Albertsons Cos. to ensure that the stores they have decided to divest can act as formidable players in the industry. Thus the retailers can keep the FTC from blocking their merger deal.
“The Albertsons-Safeway deal will loom large over how these assets are viewed and how the FTC evaluates whether these divestiture packages being offered are viable,” commented Brian Concklin.
As a complex process, divestiture requires a coordinated effort to be successful.
For any dynamic enterprise looking to maximise the transaction value while divesting its business, investing in a consulting service like Fission Consulting is a sensible decision.
Such a high-end service streamlines the process while significantly reducing business disruptions.
Kroger and Albertsons Cos. hope their plan to spin off the stores as part of the merger deal will help overcome challenges while paving the way to get FTC approval.
“We believe we have a clear path to achieve regulatory approval with divestitures,” said Gary Millerchip, Chief Financial Officer at Kroger in a Bloomberg news.