Rodney McMullen, chairman and CEO of The Kroger Co., told Wall Street analysts this week that the supermarket giant’s pending $24.6 billion acquisition of Albertsons Cos. remains on track, on both the regulatory approval and merger planning fronts.
When Kroger and Albertsons unveiled the merger deal in mid-October, the companies estimated they would need to divest 100 to 375 stores to clear the antitrust review by federal and state regulators. The agreement also includes a ceiling of 650 store divestitures, at which point the two retailers could reassess the transaction. Stores would be divested through direct sales to other operators and/or via a newly formed spinoff company, dubbed SpinCo.
“We are working cooperatively with the regulators and, at the same time, to identify potential buyers for the stores we expect to divest to obtain clearance for the transaction,” McMullen said Thursday in a conference call with analysts on Kroger’s first-quarter results. “We will find well-capitalized buyers with experienced management teams that will maintain competitiveness. We are very pleased with the level of interest received thus far, and we’ll work towards finding a solution that benefits all stakeholders.” (Call transcript provided by AlphaSense.)
The Kroger-Albertsons merger—combining the nation’s first- and second-largest supermarket retailers—would create a company with annual revenue of about $210 billion and 4,996 stores, 66 distribution centers, 52 manufacturing plants, 3,972 pharmacies, 2,015 fuel centers and 710,000 workers in 48 states and the District of Columbia.
Wrap-up with FTC nearing?
Cincinnati-based Kroger received a second request for information from the Federal Trade Commission on the proposed merger in early December. Citing anonymous sources, the investor website Seeking Alpha reported Friday that the grocer is “a couple months away from certifying substantial compliance” with that request, possibly in the calendar third quarter or early fall.
Though Kroger and Albertsons continue to expect an early 2024 completion for the deal, analysts and other industry observers have said antitrust approval likely will take longer for such a large transaction—the biggest U.S. supermarket merger ever—and could last as long as two years.
McMullen has said in media interviews and earnings calls that negotiations with the FTC have made headway and the integration process with Albertsons is proceeding. Last month, Boise, Idaho-based Albertsons confirmed reports of another key development: the appointment of Jim Perkins, executive vice president of retail operations and special projects and Mid-Atlantic division president, to lead planning for SpinCo.
“Integration planning has progressed nicely, and I’m energized by the people and talent across both the Albertsons and Kroger teams,” McMullen told analysts in the Q1 call. “I’m even more confident in the opportunities ahead as we accelerate our strategy and deliver more value for our associates, customers, communities and shareholders. We remain on track and continue to expect the transaction to close in early 2024.”
Making the case for the merger
In the analyst call, McMullen noted that Kroger and Albertsons have stepped up efforts to highlight expected benefits from the merger plus clear up what they see as misconceptions about the mega-merger. Two major unions, United Food and Commercial Workers and Teamsters, also have voiced their formal opposition to the deal.
Recently, both McMullen and Albertsons CEO Vivek Sankaran cited some public “myths” about the merger in a Cincinnati Enquirer op-ed article. By and large, the two CEOs restated what they’ve said publicly since the emergence of the deal: No store closings or job cuts are upcoming, and the combined company plans to use its scale to lower prices, not increase them.
“We continue to engage with various stakeholders, in addition to the regulators, and are actively working to address inaccuracies and misrepresentations about the merger. We made a commitment on the day we announced the deal that this merger is about growth and that we will not lay off any frontline work associates as a result of this merger. We are also committed to not closing any stores, distribution centers or manufacturing facilities as a result of the merger,” McMullen explained in the call.
“We’re very proud of our ability to make such a commitment, especially at a time when many companies are announcing job cuts,” he added. “And this is consistent with Kroger’s track record in recent mergers.”
Pricing and workforce investment
Upon the merger’s announcement, Kroger said that the combined company would invest $500 million of cost savings from merger synergies to lower prices at the shelf. An incremental $1.3 billion also is earmarked for investment to enhance the customer experience in Albertsons Cos. stores.
Kroger reported that the price investment reflects its historical practices, with $5 billion invested since 2003 to lower pricing. That includes $130 million after the 2014 Harris Teeter acquisition and $110 million following the purchase of Roundy’s in 2017.
Kroger, too, has said it expects to invest $1 billion to boost associate wages and benefits after the transaction closes. In March, the retailer announced plans to invest over $770 million in associates for 2023, including to raise average hourly wages and improve health care options, among other items. The company said it raised average hourly rates by over 6% in 2022 and has now invested an incremental $1.9 billion in associate wages since 2018.
“We remain incredibly excited about our future together with Albertsons,” McMullen said to analysts. “We are confident that, as many of our stakeholders learn about Kroger’s history of growth through mergers, they will understand the meaningful and measurable benefits this will have for our customers, associates and communities.”