Kroger announced Friday it plans to buy Albertsons in a nearly $25 billion deal that could transform the U.S. retail industry and impact the way millions of customers buy their groceries.
The deal, expected to close in 2024, would bring together two of the country’s largest supermarket chains and create one of its largest private employers. The two companies together have 710,000 workers – most of them unionized in an industry with low union rates – nearly 5,000 stores and more than $200 billion in sales.
The retail industry has consolidated in recent years, and a merger would give the companies greater reach to fend off competition from Amazon (AMZN), Walmart (WMT), and other retail giants.
The merger “accelerates our position as a more compelling alternative to larger and non-union competitors,” Kroger CEO Rodney McMullen said in a statement Friday.
The move also comes as businesses grapple with higher costs and grocery inflation hits its highest level in decades. Grocery store prices have continued to rise over the past month. The Home Grocery Index, an indicator of grocery store prices, rose 0.7% mom and 13% year-on-year in September.
“The combined company could be more productive and profitable than either of them individually,” said Joseph Feldman, a retail analyst at Telsey Advisory Group, in a note to clients on Friday. Expansion into new regions, growth of new businesses, and the combination of technology and supply chains could spur growth, he said.
Kroger (KR) will buy Albertsons for $34.10 a share — a premium of about 30% over the grocery chain’s average share price over the past month. Kroger (KR) shares are down 2% in premarket trading, while Albertsons is up more than 11%.
The companies said they will spin off nearly 400 stores to form the new rival, pending antitrust clearance.
However, analysts say passing antitrust scrutiny will be a significant hurdle.
“A deal of this magnitude that directly impacts consumers would be under scrutiny by regulators and would take a long time to get approved,” Feldman said.
Consumer advocates, unions and Democrats have already spoken out strongly against the deal.
Senator Bernie Sanders called it a “absolute disaster” and urged the Biden administration to reject the deal. The American Economic Liberties Project, an anti-monopoly organization, said the merger would be “disastrous for market competition, small businesses and most importantly – the pockets of consumers.”
FTC chair Lina Khan has criticized the company’s consolidation, and the regulator has blocked major retail mergers in the past, including Staples’ attempts to merge with Office Depot.
The FTC is currently investigating anti-competitive practices in the food industry and last year requested information from Kroger and others about the causes of empty shelves and rising prices in the United States.