The deal, which is expected to close in 2024, would combine two of the largest supermarket chains in the country and create one of its largest private employers. The two companies have a combined 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.
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The retail industry has consolidated in recent years, and merging would give the companies greater scale to fend off competition from Amazon, Walmart and other retail giants. Traditional supermarkets have been pressured by these companies and others -- discount chains such as Dollar General and Aldi, warehouse clubs like Costco, and online grocers.
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.
If the deal is completed, it would be one of the largest mergers in US retail history -- dwarfing Amazon's acquisition of Whole Foods in 2017 for $13.7 billion. The company would become the third largest retail chain in America by sales. Its combined market share in the $1.4 trillion grocery industry would be 13.5%, according to Morgan Stanley, making it the second largest grocer behind Walmart's 15.5% share.
The move also comes as companies battle higher costs and food inflation reaches its highest level in decades. Prices at grocery stores continued to soar last month. The food at home index, a proxy for grocery store prices, increased 0.7% in September from the month prior and 13% over the last year.
Kroger said it would use half a billion dollars in cost savings from the merger to invest in lower prices.
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"The combined company could be more productive and profitable than either of them individually," Joseph Feldman, a retail analyst at Telsey Advisory Group, said in a note to clients Friday. Expanding into new geographies, growing new businesses, and combining technology and supply chains could fuel growth, he said.
Kroger will buy Albertsons for $34.10 a share - a roughly 30% premium above the grocery chain's average share price over the course of the past month. Shares of Kroger slid 2% in pre-market trading, while Albertsons soared more than 11%.
The two companies operate dozens of grocery chains. Kroger operates Ralphs, Harris Teeter, Dillons, Fred Meyer and others, while Albertsons owns Safeway and Vons.The companies said they will spin off nearly 400 stores to form a new rival in an effort to gain antitrust clearance.
But analysts say it will be a significant hurdle to pass antitrust scrutiny.
"A deal of this size that has a direct impact on consumers would face significant scrutiny from regulators and take a long time period to be approved," Feldman said.
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Consumer watchdogs, unions, and Democrats have already come out strongly against the deal.
Sen. Bernie Sanders called it a "absolute disaster" and called on 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 especially -- consumers' pockets."
FTC chair Lina Khan is critic of corporate consolidation, and the regulator has blocked large retail mergers in the past, including Staples' attempts to combine with Office Depot.
The FTC is currently looking into anti-competitive practices in the grocery industry and requested information last year from Kroger and others on the causes of empty shelves and surging prices in the United States.
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