1 big thing: FTC likely to challenge Kroger-Albertsons merger

Illustration of an Albertsons' grocery bag inside of a Kroger's bag.

2. Snacking shapes grocery aisles

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3. Ara Labs raising $50M

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4. FTC versus Amazon

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5. J.M. Smucker to sell Sahale at a loss

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Happy Friday, Retail readers. Research associate Natalie Breymeyer here with your weekly digest.

But first: What the FTC may have in store for Kroger-Albertsons.

⏸️ Situational awareness: Birkenstocks will pause its planned IPO roadshow next week if House Republicans shut down the federal government this weekend, Axios' Dan Primack reports.

🍾 Natalie's good friend is getting married this weekend and she can't wait to celebrate.

🙏🏻 Thanks for reading and special thanks to copy editor Mickey Meece! Please ask your friends and colleagues to sign up.

Retail Deals

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1 big thing: Investors hungry for food and beverage M&A

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2. State of play: Snack brand M&A

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3. The BFD: J.M. Smucker to sell Sahale at a loss

4. Retail therapy

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5. Retail transactions

6. It's Personnel

💸 Situational awareness: Sycamore Partners will take Chico's private for $938 million in an all-cash deal.

📺 What we're watching: Thanks to her husband's love of soccer, Kim's signed up for Peacock and Showtime (at least for the season) and can watch shows like "Dreaming Whilst Black."

✏️ Many thanks to newsletter editor Claire Rychlewski and copy editor Mickey Meece for today's edits.

🙏 Thank you for reading Retail Deals. See you again tomorrow.

1 big thing: FTC versus Amazon

2. The BFD: Whipped cream exclusive

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3. Shopify invests in wholesale marketplace Faire

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4. Retail transactions

5. It's Personnel

📺 What we're watching: Richard has been enjoying the second season of the fantasy series "The Wheel of Time" on Amazon Prime.

✏️ Many thanks to newsletter editor Claire Rychlewski and copy editor Patricia Guadalupe for today's edits.

1 big thing: Warehouse planning levels up with AI

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2. The BFD: Ara Labs raising $50M

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3. Retail therapy

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🎵 What we're listening to: After seeing R&B artist Ashanti perform at Groceryshop last week, Kim's been listening to more early aughts artists: Aaliyah, Mya, Eve and J Lo.

✏️ Many thanks to newsletter editor Claire Rychlewski and editor Mickey Meece for today's edits.

1 big thing: Full Glass adds DTC Wine Insiders

Illustration of a one-dollar bill with George Washington holding a glass of red wine.

2. The BFD: Sycamore's all-equity deal 

3. Birkenstock steps into the public markets

Illustration of the painting The Birth of Venus by Botticelli with a Birkenstock sandal in place of Venus

Illustration of a paper shopping bag wearing a clay mask and cucumber slices with a jar of mask clay next to it

🧸 Situational awareness: Toys R Us owner WHP Global will open up to 24 flagship stores under the retail banner beginning next year in partnership with Go Retail Group.

📺 What we're watching: Richard began watching the latest season of "The Great British Baking Show" (or "The Great British Bake Off" if you like), and learned that cakes can be flavored with tahini ... and taste delicious?

🖊️ Many thanks to newsletter editor Claire Rychlewski and copy editor Mickey Meece for today's edits.

🙏🏽 Thank you for reading Retail Deals. See you again tomorrow.

Media Deals

Ara Labs, best known for its car-top advertising screens, is in the midst of raising a $50 million round, two sources close to the situation tell Axios.

Why it matters: If successful, a raise would demonstrate investor interest in a business that operates within two growing segments of the ad industry — out-of-home and retail media.

Details: The round will consist of $40 million in debt and $10 million in growth equity, the sources say. The raise could value the Los Angeles-based digital out-of-home company at north of $80 million.

Ara Labs recently received a term sheet from a $1 billion fund to provide the financing, one of the sources says.

The company plans to invest the cash in expanding its advertising display business for electrical vehicle chargers, according to the sources.

What we're watching: Ara Labs could be acquired instead, as the company has seen takeover interest during the fundraising process and is working with an unnamed investment bank, one of the sources says. 

Shell acquired Ara Labs' rival Volta for $169 million earlier this year.

Of note: CEO Jeff Cripe told Axios earlier this year Ara Labs, formerly known as Cargo, was seeking to raise a Series B round.

By the numbers: The company doubled its revenue and quintupled its EBITDA in 2022, Cripe said in January at Solomon Partners' Media and Entertainment Summit. 

It's been profitable since April 2021 and that profitability has improved as the business has scaled, he noted.

In 2018, the company raised $22 million in a Series A round, led by Founders Fund with participation from Coatue Management and Aquiline Technology Growth.

The big picture: There are large swaths of the U.S. where there is not enough electric vehicle adoption to make EV chargers economically viable.

Advertising displays can subsidize the cost of EV chargers, for both property owners and EV owners.

The bottom line: Ara Labs has "realized that in a world where everyone wants to be asset light, there's an opportunity to be asset heavy," one source says.

acquired Ara Labs' rival Volta for $169 million

Scoop: Ara Labs raising $50 million, could be acquired

The company, known for its car-top screens, is attracting interest from investors and acquirers.

Retail tech

Scoop

Ara Labs, best known for <a class="gtmContentClick" data-vars-link-text="its car-top advertising screens" data-vars-click-url="https://www.axios.com/pro/media-deals/2023/01/26/ara-labs-funding" data-vars-content-id="35b6b066-1a54-488b-aa39-a095e718fd19" data-vars-headline="Scoop: Ara Labs raising $50 million, could be acquired" data-vars-event-category="story" data-vars-sub-category="story" data-vars-item="in_content_link" href="https://www.axios.com/pro/media-deals/2023/01/26/ara-labs-funding" target="_self">its car-top advertising screens</a>, is in the midst of raising a $50 million round, two sources close to the situation tell Axios.Why it matters: If successful, a raise would demonstrate investor interest in a business that operates within two growing segments of the ad industry — out-of-home and retail media.

Private equity firm Sycamore has lined up all equity to finance its acquisition of apparel retailer Chico's FAS for $1 billion, per SEC filings and confirmed by a source close to the situation.

Why it matters: An all-equity deal takes the "L" out of LBO and the transaction is one of the rare take-privates of a U.S. retailer in recent years, particularly in apparel.

Of note: Sycamore declined to comment on whether it will ultimately utilize debt and if it does, how much the amount would be and what the timing might look like.

Details: The transaction does not hinge on a financing condition and there is a 30-day go-shop period in which Chico's financial adviser, investment bank Solomon Partners, can actively solicit other proposals.

What we're watching: It is possible that Sycamore lines up debt financing immediately once the deal closes, which could be done quickly, says an industry banker.

Another option is for the PE firm to wait until the debt markets fully reopen and financing becomes more affordable.

It could then claw back a large chunk of the equity it is sinking into the deal via a dividend recap.

Regardless, Sycamore could split up the business and monetize the retailer's parts, which includes the banners Chico's, White House Black Market and Soma.

Specifically, it could spin off Soma, which is seen as the most lucrative part of the business, the industry banker says, and finance that transaction with debt.

Catch up fast: Sycamore has been one of the most aggressive users of debt and dividend recaps to back retail buyouts over the past decade.

At one point, its deals were financed with between 20% and 30% equity and between 70% and 80% debt.

Between the lines: Obtaining syndicated debt in the current financing environment is no easy feat.

PE firms have resorted to direct lending (though typically more expensive) and for franchisors, whole business securitization.

The intrigue: Activist investor Barington Capital Management, which had been pushing for change for several years, did not report a stake in Chico's, per its most recent 13F filing.

In 2021, Barington noted intimate clothing brand Soma alone could be worth more than the entire company.

Be smart: PE has a mixed track record when it comes to successful retail LBOs over the past decade.

Two of the most recent retail LBOs are already experiencing financial difficulties: Hellman & Friedman-backed At Home Group defaulted on its debt in May, while Moody's downgraded Apollo-backed Michaels to a credit rating of B3.

Firms often target unhealthy banners that can be acquired for a relative bargain.

Debt is then ladened onto the balance sheet, which siphons away free cash flow that could be saved for a rainy day or reinvested.

Disruptive startups or technologies, or unforeseen seismic events like a financial crisis or pandemic, can create the perfect storm for bankruptcy.

Then add to all that the fact that the cost of servicing debt has at least doubled over the past couple of years.

Sycamore lines up equity to finance Chico's acquisition

The PE firm could split off the Soma brand and raise debt once the deal closes.

A storefront for apparel intimates brand Soma.

Chico's includes the banner, Soma. Photo by Smith Collection/Gado/Getty Images

Retail deals

Private equity firm Sycamore has lined up all equity to finance its acquisition of apparel retailer Chico&#x27;s FAS for $1 billion, per SEC filings and confirmed by a source close to the situation.Why it matters: An all-equity deal takes the &quot;L&quot; out of LBO and the transaction is one of the rare take-privates of a U.S. retailer in recent years, particularly in apparel.

The Federal Trade Commission is likely to challenge the Kroger and Albertsons merger, former FTC policy director David Balto and a source familiar with the FTC's thinking tell Axios.

Why it matters: Despite the effort the merging parties have gone to, to appease the FTC, they have run straight into the headwinds of antitrust enforcement, Balto says.

Of note: Balto says he has previously provided legal counsel to a number of supermarket operators, including Ahold Delhaize.

Driving the news: FTC chair Lina Khan has gone on a listening tour of sorts, most recently in Las Vegas on Wednesday, where she voiced concerns about the merger.

She specifically cited the merger of Safeway and Albertsons as an example of a deal that did not fulfill its commitments.

"If there's a merger that is presenting a lot of risk of reducing competition, may even create a monopoly, you know, we need to weigh those risks, and especially given that some of these remedies in the past have failed," Khan told 8 news, a CBS affiliate in Las Vegas, after the session.

Details: If Kroger had found a multi-brand acquirer like Ahold Delhaize to buy its divestiture, it may have improved its chances of gaining the FTC's blessing, Balto says.

"The standard under the law is a merger is anti-competitive unless there is a remedy that fully restores competition," he says.

Balto says that selling stores to C&S Wholesale, which is more of a wholesaler than an operator, fails to fully do that.

Between the lines: There's also the complicating matter that the Albertsons name is allowed to be used in some markets and not in others, which the FTC dislikes, he says.

It's difficult to effectively market when sharing a trademark, Balto says.

And while Kroger would gain buying power that could arguably be passed on to the consumer in the form of lower prices, the deal simultaneously removes a major competitor, negating that, he says.

Yes, but: C&S can support the stores it is acquiring on the backend, but operationally it can't compete with full-service regional chains, Balto says.

There's also the possibility Kroger finds an alternate remedy, but it's difficult to do while a deal is being litigated, he says.

The other side: There is still a chance that Kroger and Albertsons could reach a deal with the FTC, a second source familiar with the situation says.

The two merging parties go to meet with the agency next week to provide assurances on the deal, the source says, and that the number of stores being divested can be increased.

The source noted that while the sharing of the Albertsons banner is not ideal and there's not a perfect remedy there, it is for the benefit of consumers.

The source went on to note that it is competition with Walmart that keeps Kroger's prices low.

There is also hope that Kroger's appeal to unions and the preservation of jobs will also ultimately appease the FTC.

There's an opening for Khan to get a big win on supermarket mergers by negotiating a settlement, the source concludes.

Zoom out: The FTC has not been shy about opposing deals under Khan.

She has defended the agency's record on mergers, claiming that of the 13 to 20 cases it has brought, the FTC has lost only two in court.

Those two cases include Meta and Within and Microsoft and Activision, though it is appealing the latter.

Zoom in: A number of sources have told Axios that it is likely the merger will end up in court, but that the FTC would face skepticism there.

Balto, however, thinks the FTC will win its case.

The bottom line: The FTC is not seeking a one-off divestiture — the agency is looking to establish the law on supermarket mergers that will govern future such deals, Balto says.

"We're talking food prices," he emphasizes.

The FTC, Kroger, Albertsons and C&S declined to comment.

FTC likely to challenge Kroger-Albertsons merger

The merging parties went to huge effort to appease an FTC that wants to make mergers more difficult.

Kroger

The Federal Trade Commission is likely to challenge the <a class="gtmContentClick" data-vars-link-text="Kroger and Albertsons merger" data-vars-click-url="https://www.axios.com/pro/retail-deals/2023/08/07/kroger-albertsons-divestitures-suitors-ftc-antitrust" data-vars-content-id="484a7ede-6e23-4b23-b4f7-0cf15b925412" data-vars-headline="FTC likely to challenge Kroger-Albertsons merger" data-vars-event-category="story" data-vars-sub-category="story" data-vars-item="in_content_link" href="https://www.axios.com/pro/retail-deals/2023/08/07/kroger-albertsons-divestitures-suitors-ftc-antitrust" target="_self">Kroger and Albertsons merger</a>, former FTC policy director David Balto and a source familiar with the FTC&#x27;s thinking tell Axios.Why it matters: <a class="gtmContentClick" data-vars-link-text="Despite the effort" data-vars-click-url="https://www.axios.com/pro/retail-deals/2023/09/08/kroger-albertsons-mergers-cs-wholesale-grocery-stores-divestitures" data-vars-content-id="484a7ede-6e23-4b23-b4f7-0cf15b925412" data-vars-headline="FTC likely to challenge Kroger-Albertsons merger" data-vars-event-category="story" data-vars-sub-category="story" data-vars-item="in_content_link" href="https://www.axios.com/pro/retail-deals/2023/09/08/kroger-albertsons-mergers-cs-wholesale-grocery-stores-divestitures" target="_self">Despite the effort</a> the merging parties have gone to, to appease the FTC, they have run straight into the headwinds of antitrust enforcement, Balto says.

The Federal Trade Commission faces an uphill battle suing Amazon over alleged anti-competitive business practices, industry sources tell Axios.

Why it matters: By all accounts, it's one of the most important antitrust cases ever brought by the FTC.

What's happening: The FTC's complaint, which was joined by 17 state attorneys general, alleges that Amazon illegally uses "anti-discounting tactics" that prevent other online retailers from offering lower prices, and also that it "effectively requires" Amazon sellers to use the company's "costly" fulfillment services.

The FTC is asking for structural relief but doesn't identify any desired divestitures. Instead, it first wants a finding of liability, and then would work on solutions.

Between the lines: The regulatory agency has the onus of proving harm to the consumer, which its complaint ineffectively tries to do, the sources say.

Amazon is a disruptive market force that has helped to lower prices and improve services to consumers, says David Balto, who was formerly a Department of Justice antitrust lawyer.

And while the e-commerce giant has priced aggressively, it would be difficult to prove that it is driving rivals out of business and raising prices as a result, he adds.

"The law is crystal clear. Lower prices for consumers are the lodestar that guides antitrust."

An argument could be made that penalizing Amazon or, at the most extreme, breaking up Prime could actually harm the consumer, says Brian Albrecht, chief economist at the International Center for Law & Economics

Yes, but: FTC chair Lina Khan wants to transform the role of the agency by having it test the limits of the law — not to strike conciliatory deals, as it has done in the past, Balto says.

This lawsuit may be less about legal wins and more about influencing how the law develops, Balto continues.

She "deserves a ton of credit there," he adds.

By understanding where the courts stand, regulators are in a better position to challenge the next case — and it could temper the behavior of other corporations in the future, he says.

Context: Most of the FTC's complaints are centered on how Amazon's practices affect other businesses. For example, sellers that use its marketplace and are required to pay for its shipping services.

"At the very least, any relief would require that the company halt those tactics," Khan told Bloomberg yesterday.

"Effective relief also needs to be restoring competition to this market, which we'll be asking the judge to do as well."

Of note: While such lawsuits can sometimes take years to come before a judge, this is likely to work its way into the court system within a year, Balto says.

Catch up quick: Sen. Chuck Grassley and Sen. Amy Klobuchar have introduced legislation to stiffen the regulation of large tech conglomerates, that so far has gained little traction.

Be smart: Because of anticipated difficulties in court, critics will argue antitrust law is outdated and is not equipped to regulate modern tech conglomerates, Albrecht says.

The bottom line: The FTC is "going to have to turn some mainstream antitrust principles on their head to challenge Amazon," Balto says. And judges might be skeptical.

The Federal Trade Commission did not respond to a request for comment.

FTC faces uphill battle in taking on Amazon

The regulatory agency has the onus of proving harm to the consumer.

Amazon

The Federal Trade Commission faces an uphill battle <a class="gtmContentClick" data-vars-link-text="suing Amazon" data-vars-click-url="https://www.axios.com/2023/09/26/ftc-amazon-monopoly-lawsuit" data-vars-content-id="9c0e0465-7a5b-413a-8e95-0a3e7d9ede34" data-vars-headline="FTC faces uphill battle in taking on Amazon" data-vars-event-category="story" data-vars-sub-category="story" data-vars-item="in_content_link" href="https://www.axios.com/2023/09/26/ftc-amazon-monopoly-lawsuit" target="_self">suing Amazon</a> over alleged <a class="gtmContentClick" data-vars-link-text="anti-competitive business practices" data-vars-click-url="https://www.ftc.gov/news-events/news/press-releases/2023/09/ftc-sues-amazon-illegally-maintaining-monopoly-power" data-vars-content-id="9c0e0465-7a5b-413a-8e95-0a3e7d9ede34" data-vars-headline="FTC faces uphill battle in taking on Amazon" data-vars-event-category="story" data-vars-sub-category="story" data-vars-item="in_content_link" href="https://www.ftc.gov/news-events/news/press-releases/2023/09/ftc-sues-amazon-illegally-maintaining-monopoly-power" target="_blank">anti-competitive business practices</a>, industry sources tell Axios.Why it matters: By all accounts, it&#x27;s one of the most important antitrust cases ever brought by the FTC.

J.M. Smucker is selling the better-for-you snack brand Sahale for about $34 million, much less than the reported $150 million it shelled out almost a decade ago.

Why it matters: The deal follows the CPG group's deal for Twinkie maker Hostess for $5.6 billion — demonstrating that while snacking is in, it doesn't have to be better for you.

Details: Sahale, which includes the trademarks and a production facility in Seattle, is being sold to Second Nature Brands.

Sahale had sales of about $48 million for the year ended April 30, about what it generated when it was first acquired.

J.M. Smucker CEO Mark Smucker said the divestiture sharpens the company's focus, allowing it to spend more time on higher growth businesses such as Uncrustables.

Between the lines: This is the unwinding of another deal made when the better-for-you category was all the rage, echoing Hershey's acquisition and subsequent sale of the jerky brand Krave.

CPG giants are being more selective about what they buy. Targets need to have sustainable growth and be profitable, in addition to being on trend.

The deal also underscores how CPG companies are seeking to balance portfolios: Unilever, for example, bought the frozen Greek yogurt brand Yasso in June but is selling the personal care unit, Elida Beauty.

J.M. Smucker agrees to sell Sahale for a loss

The food group acquired the business for a reported $150 million almost a decade ago.

Food

J.M. Smucker is <a class="gtmContentClick" data-vars-link-text="selling the better-for-you snack brand Sahale" data-vars-click-url="https://investors.jmsmucker.com/2023-09-27-The-J-M-Smucker-Co-Announces-Agreement-to-Divest-Sahale-Snacks-R-Brand-to-Sharpen-Focus-and-Support-Continued-Growth-in-Consumer-Foods-Business" data-vars-content-id="c9cc48cd-f4f0-4dc2-b37f-1fe37fa8f4a0" data-vars-headline="J.M. Smucker agrees to sell Sahale for a loss" data-vars-event-category="story" data-vars-sub-category="story" data-vars-item="in_content_link" href="https://investors.jmsmucker.com/2023-09-27-The-J-M-Smucker-Co-Announces-Agreement-to-Divest-Sahale-Snacks-R-Brand-to-Sharpen-Focus-and-Support-Continued-Growth-in-Consumer-Foods-Business" target="_blank">selling the better-for-you snack brand Sahale</a> for about $34 million, much less than <a class="gtmContentClick" data-vars-link-text="the reported $150 million" data-vars-click-url="https://www.thestreet.com/markets/mergers-and-acquisitions/source-says-snow-phipps-wins-pe-backed-teasdale-foods-for-about-200-million-12934709" data-vars-content-id="c9cc48cd-f4f0-4dc2-b37f-1fe37fa8f4a0" data-vars-headline="J.M. Smucker agrees to sell Sahale for a loss" data-vars-event-category="story" data-vars-sub-category="story" data-vars-item="in_content_link" href="https://www.thestreet.com/markets/mergers-and-acquisitions/source-says-snow-phipps-wins-pe-backed-teasdale-foods-for-about-200-million-12934709" target="_blank">the reported $150 million</a> it shelled out <a class="gtmContentClick" data-vars-link-text="almost a decade ago" data-vars-click-url="https://www.prnewswire.com/news-releases/the-j-m-smucker-company-to-acquire-sahale-snacks-inc-a-leader-in-premium-branded-nut-and-fruit-snacks-270215961.html" data-vars-content-id="c9cc48cd-f4f0-4dc2-b37f-1fe37fa8f4a0" data-vars-headline="J.M. Smucker agrees to sell Sahale for a loss" data-vars-event-category="story" data-vars-sub-category="story" data-vars-item="in_content_link" href="https://www.prnewswire.com/news-releases/the-j-m-smucker-company-to-acquire-sahale-snacks-inc-a-leader-in-premium-branded-nut-and-fruit-snacks-270215961.html" target="_blank">almost a decade ago</a>.Why it matters: The deal follows the CPG group&#x27;s deal for <a class="gtmContentClick" data-vars-link-text="Twinkie maker Hostess for $5.6 billion" data-vars-click-url="https://www.axios.com/2023/09/11/jm-smucker-buy-twinkie-maker-hostess" data-vars-content-id="c9cc48cd-f4f0-4dc2-b37f-1fe37fa8f4a0" data-vars-headline="J.M. Smucker agrees to sell Sahale for a loss" data-vars-event-category="story" data-vars-sub-category="story" data-vars-item="in_content_link" href="https://www.axios.com/2023/09/11/jm-smucker-buy-twinkie-maker-hostess" target="_self">Twinkie maker Hostess for $5.6 billion</a> — demonstrating that while snacking is in, it doesn&#x27;t have to be better for you.

Richard Collings

Stories

Sycamore lines up equity to finance Chico's acquisition

FTC likely to challenge Kroger-Albertsons merger

J.M. Smucker agrees to sell Sahale for a loss

FTC faces uphill battle in taking on Amazon

Scoop: Ara Labs raising $50 million, could be acquired

Newsletter editions

Retail: Sycamore's all-equity deal

Retail: 11th-hour for Kroger-Albertsons

Retail: Food+beverage fever

Retail: FTC v Amazon

Retail: Tech Tuesday