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Kroger-Albertsons Merger Faces Long Road Before Approval

Consumer advocates, unions and independent grocers are against a deal that would join Kroger and Albertsons, and be lucrative for investors.

Kroger’s $24.6 billion merger with Albertsons could be a year away from gaining regulatory clearance.Credit...Nic Antaya for The New York Times

Ever since the pending megamerger between Kroger and Albertsons, the two largest grocery store chains in the country, was announced in October, the companies have argued that the marriage will be good for consumers, employees and communities.

But the biggest winners in the $24.6 billion deal may be the private-equity giant Cerberus and a group of investors. They have already made big profits in their long-term investment in Albertsons and hope to make billions of dollars more through the merger.

The buyout group was a step closer to a big payday last week when the Washington State Supreme Court declined to review a case brought by the state attorney general that tried to stop a dividend payment to Albertsons’ shareholders, arguing that it would financially weaken the company if the transaction failed.

The decision clears the way for Albertsons to pay its shareholders a $4 billion dividend. The buyout group, which owns 73 percent of the company, will receive the biggest share of the dividend, or $3 billion, of which $2.5 billion will come from cash and about $1.5 billion will be borrowed and put on Albertsons’ balance sheet. Albertsons said it would immediately begin the process of paying the special dividend.

The legal challenge to the dividend was the first in what is likely to be a long and arduous process for Kroger and Albertsons, and their plan to create a behemoth with $200 billion in annual revenues and 5,000 stores across the country operating under well-known chains like Safeway, Ralphs and Vons.

The companies have said regulatory approval for the complicated transaction won’t happen until early next year and may require the sale or spinoff of hundreds of grocery stores. Washington Analysis, a research firm in Washington, D.C., that focuses on political and regulatory policy, put the odds of the merger successfully closing at 35 percent.

At a time when consumers are already withering under high food prices, consumer advocates argue that the deal would wipe out any meaningful competition in numerous cities and communities and ultimately lead to consumers paying more.

Union officials have attacked the deal, saying it puts jobs at risk as antitrust regulators will probably force the sale of hundreds of grocery stores across the country.

The two grocery store chains and investment firms involved insist the deal isn’t about a payday for investors. “Our merger with Albertsons provides meaningful, measurable benefits to America’s consumers, associates of both companies and the communities we serve,” Kroger said in a statement.

Albertsons said in a statement that it had “grown tremendously with the help of our sponsors and other investors.” It added that it had spent billions of dollars to modernize its stores and build digital and technology platforms, as well as to improve associate wages, benefits and training programs. For the private-equity giant Cerberus, which was co-founded by the billionaire Stephen Feinberg and oversees $60 billion in assets, getting into the grocery business was relatively easy. Getting out has proved much more difficult.

For years, the grocery store industry had low growth yet was intensely competitive, with Walmart, Target, Costco and others increasingly elbowing their way into food shoppers’ carts. As grocery chains struggled to compete against the big-box behemoths, consolidation happened and private-equity firms moved in, sometimes with disastrous results.



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