Court urged to stall proposed Kroger-Albertsons merger
Monique Merrill
PORTLAND, Ore. (CN) — A federal judge in Oregon is tasked with deciding whether or not to thwart two of the country’s largest supermarket chains from merging, as attorneys from both sides presented sharply opposing closing arguments on Tuesday.
Kroger argued its merger with Albertsons would lead to immediately lower prices for consumers, but the Federal Trade Commission said the supermarket merger would kill competition and harm the workforce.
The FTC, joined by nine states, seeks a preliminary injunction to halt the proposed merger. Closing arguments were held Tuesday, bringing a close to the hearing as it entered the fourth week.
“The defendants are wrong on both the facts and the law,” said attorney Susan Musser, representing the FTC.
To prevail in the hearing, the burden falls on Kroger and Albertsons to produce facts and evidence to counter the FTC's accusation that the merger is anticompetitive, something Musser said they failed to do.
“The plaintiffs have shown the product markets are well defined and this merger causes harm,” Musser said.
Attorney Matthew Wolf, representing Kroger, attacked the FTC's product market and argued the regulators’ closing arguments weren’t supported by the evidence produced during the 15 days of the hearing.
“The evidence in the record cannot possibly satisfy the high burden in this case,” Wolf said. He accused the FTC of relying on innuendo, speculation and supposition in forming its arguments and reiterated Kroger’s commitment to keeping prices low.
A merger, Wolf said, is the only way the two supermarket chains can adequately compete with “global, non-union behemoths” like Walmart.
“If we don’t do something, the corner grocery store is in real danger,” Wolf said, and added that the merger is crucial for the company to be able to keep its prices competitive to Walmart by bringing in revenue from non-grocery sources, like customer data from Albertsons.
The attorney reminded the court that part of the deal would see a $1 billion price investment dedicated to keeping grocery prices low. On rebuttal, Musser tore into that promise.
Musser said she wasn’t accusing the supermarket CEOs of lying when they promised to invest $1 billion to keep costs low, but reminded the judge that the price investment was not legally enforceable.
“Experience tells us that promises can be broken,” Musser said. “Circumstances change and executives have a fiduciary duty not to shoppers, but to shareholders.”
Attorney Enu Mainigi, representing Albertsons, pointed to Albertsons CEO Vivek Sankaran’s testimony to paint a dire picture of the future of the company. Sankaran had testified that the supermarket would be okay for the next two to four years, but would need to consider layoffs, store closures or exiting markets without an intervention.
Musser characterized the argument as the “Hail Mary pass of doomed mergers,” and said the evidence contradicted that defense.
“The evidence shows Albertsons is succeeding,” Musser said. “This is not a failing, flailing or weakened competitor.”
The parties also disputed whether the divestment sale of 579 Kroger and Albertsons stores and some brands to C&S Wholesale Grocers — a supplier that owns the Piggly Wiggly and Grand Union store brands — would adequately preserve competition.
Attorney Laura Hall, also representing the FTC, accused the companies of creating the divestiture plan for litigation purposes, not for business success, and reminded the court that C&S could sell and close the stores if sales declined.
Wolf said the wholesaler was set up for success, and said the company would lose $900 million if it sold off the stores.
“The government’s theories just don’t make sense,” he said.
As for the workforce, the FTC argued that the merger would harm unions. Together, the companies employ around 710,00 workers. Having the supermarket chains be separate provides those unions with bargaining leverage, which the FTC argued would be diminished by having them merge.
Wolf disputed the claim and said union leverage would increase after the merger.
“We will preserve the unions,” Wolf said.
U.S. District Court Judge Adrienne Nelson in the District of Oregon refrained from asking any questions and let the parties argue uninterrupted. At the close of the hearing, she did not give a timeline for when she expected to have her answer but said she would work expeditiously to produce one.
If the FTC is successful, a lengthy internal probe into the merger is set to begin on Oct. 1.
The FTC hearing is just the first of Kroger and Albertsons’ legal hurdles. A lawsuit brought by the state of Washington seeking to block the merger started this week, and Colorado’s trial against the merger is set to start on Sept. 30.
If the supermarkets are successful in those trials, the two stores still cannot close on a deal until five days after the court rules in the Colorado trial, according to an order from the court.