Both Kroger and Albertsons intended to proceed with share repurchases to raise their stock values and compensate investors within a day of their $25 billion merger collapsing in court.
The two biggest grocery store owners in America had contended that by banding together, they would be better equipped to cut prices for customers. They claimed that doing so would increase their bargaining power with suppliers and make it simpler for them to take on larger supermarket retailers like Walmart, Costco, and Amazon.
In a lawsuit opposing the merger, the Federal Trade Commission claimed that the Biden administration disagreed, arguing that the agreement threatened to lower workers’ wages and bargaining strength and lessen industry competition, which may raise food costs.
It is hard to know if any of it would have occurred now that the sale has fallen through. However, U.S. District Judge Adrienne Nelson of Oregon expressed skepticism in her ruling on Tuesday, stating that there is no assurance that consumers will profit from the businesses’ pledges to invest in lower pricing because they were neither merger-specific nor verifiable.
“The Court must give limited weight to a non-binding promise made during these proceedings, and the promise to make a price investment is not legally binding,” she said. On Tuesday, a Seattle Superior Court judge upheld Nelson’s decision and ordered an injunction against the merger. Albertsons ended the agreement and filed a lawsuit against Kroger on Wednesday, claiming the former partner had not done enough to obtain regulatory approval.
The drama started at the same time that the federal government announced new November inflation data that showed supermarket prices were still rising somewhat.
The price of food consumed at home increased 1.6% last month compared to the same period last year. This was a 0.5% increase from the previous month, but it was still less than the 2.7% annual inflation rate overall. Although food prices are often erratic, a wholesale inflation report that was released Thursday showed rises for a wide range of goods, from fruit to chicken.
Kroger reaffirmed its pledge to cut costs on Wednesday, claiming to have spent billions on cost-cutting measures over the previous 20 years. The chain also disclosed that it had invested up to $3.8 billion annually in store upgrades and $2.4 billion in pay increases since 2018. Albertsons also pledged to continue concentrating on enhancing our value proposition for clients.
Albertsons declined to comment further, and neither business provided additional information regarding their efforts to reduce prices. Kroger merely stated that it offers competitive pricing, fuel rewards, personalized offers, loyalty discounts, and a distinctive private label portfolio to give customers value.
In addition, both supermarket chains said this week that they would be investing billions of dollars in initiatives that would increase shareholder value.
Kroger said it would repurchase $7.5 billion of its shares after a more than two-year pause, with $5 billion of that to be repurchased in an accelerated fashion the same sum that Kroger estimated Wednesday it has spent to lowering prices over the past 21 years. Albertsons announced that it would raise the dividend it pays to stockholders by 25% and buyback $2 billion worth of shares.
All investors, but particularly the largest stakeholder, gain from dividend payments and stock repurchases, which lower the number of shares available and increase the value of the remaining shares. Large Wall Street corporations with the financial clout to purchase and hold millions of shares of publicly traded companies are usually among the top shareholders.
The Vanguard Group, the country s largest mutual fund provider, and BlackRock, the world s largest asset manager, with over $11.5 trillion under its supervision, have the largest stakes in Albertsons. Wall Street investment firm Cerberus Capital Management, Vanguard, BlackRock and billionaire investor Warren Buffett s Berkshire Hathaway conglomerate are the top owners of Kroger shares.
There was much expectation that the combination would result in growth for both of these businesses. According to Neil Saunders, managing director of the retail consulting firm GlobalData, those things aren’t happening right now. Repurchasing shares could help inject more optimistic sentiment among investors, effectively reassuring them we ll generate good returns for you, he said.
Kroger s stock has been trading roughly 3% higher since Wednesday, while Albertsons had clawed back roughly all its losses following the ruling by late Thursday.
In the meantime, consumer groups and labor advocates are hailing the blocked merger as a victory for shoppers and workers and as a vindication of the Biden administration s antitrust efforts during its final weeks in office.
According to Seth Harris, a law and policy professor at Northeastern University and a former top labor adviser in the Biden White House, the judges in the case correctly saw the merger as a huge threat to the jobs and benefits of thousands of their members who work for those chains and the communities in which they live.
Thomas Gremillion, director of food policy at the Consumer Federation of America, said, Combining two of the four largest food retailers would have also reduced consumer choice, leading to fewer alternatives to low-quality, ultra-processed foods.
Unfortunately, the Trump administration seems unlikely to build on this important step towards restoring competition in food retail, Gremillion said, citingPresident-elect Donald Trump s selection of Andrew Fergusonto replace Lina Khan atop the FTC. That s a sign that Big Food will only be getting bigger over the next four years, he predicted.
In a Septembercampaign stop at a grocery store in Kittanning, Pennsylvania,Trump slammed the Biden-Harris administration over the costs of everything from eggs and cereal to ground beef. Bacon is through the roof, he said.
Trump said Thursdayat the New York Stock Exchange that increasing oil and natural gas drilling would help lower inflation, including for food prices, a promise energy analysts haveviewed skeptically. But in aTime magazine profilepublished Thursday, he said of groceries: It s hard to bring things down once they re up. You know, it’s really difficult.
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