FTC likely to challenge Kroger-Albertsons merger

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.