Kroger to merge with Albertsons?

[retailfanmitchell019]

They're going to follow the 7-Eleven Speedway model to the T, except for closing Pre approval.

Basically they are going to start by putting selected locations on the block and selling them to competitors either a store at a time (in surgical markets like SoCal where overlap is a mess) or in an entire group (like the more problematic Nevada and Arizona where a KR store is seemingly always on the other corner from an ACI store). This will be the wave 1 of divests and it is likely imminent that the "for sale" list gets posted of selected ACI and KR stores. The list was made cooperatively as previously disclosed - it isn't collusion if you announce it and the government doesn't immediately say no.

The divestitures are just straightforward sales to competitors. The SpinCo idea was BS from the start and they never intended to actually go through with it unless they were forced to - which of course by design the SpinCo would quickly degenerate into a group of zombie stores since they are not willing to part with any non-retail assets (warehouses, manufacturing plants, etc.). I'm betting that the rampant speculation on banners like Albertsons itself here is misguided too. They won't let any banner go unless they have a convenient need to sell it entirely (QFC although they'll surgically pick and choose what sells vs converts to Safeway, discount banners Rvler FoodsCo and Food4Less). Aside from QFC which could go anywhere I suspect that the SpinCo proposal would primarily be the discount brands and have a stated intent to convert other stores lumped in to one of those formats. They get to claim they've created an "agile new competitor focused on driving down food prices in the community" and who could say no to that?

As far as divesting without FTC approval? That's exactly what they've indicated they would do from day one, at least to start the process. And everyone is probably better off with the companies doing this vs. the FTC or state AGs because they love to point out problems like the Haggen debacle... But they are just as responsible for that failure as ACI.

So it's going to go down like this.

Divest Wave 1: sale to competitors self selected obvious overlaps (even fixing some overlaps that survived the ACI merger like Vons across the street from Albertsons). Groups like ACI southwest coupled with surgically selected in SoCal and PNW. They'll mainly be less desirable stores coupled with bad landlord relationship stores threatened with redevelopment. These are stores that if there was no opposition at all to the merger they'd just close them right away unless the rent was cheap. Intent is to get rid of what they would anyway at a profit and move to localized discussions with AGs etc. on any other situation they find undesirable.

Divest Wave 2: these will be additional stores added to the sale to competitor list which are selected through negotiations with a state AG or other governmental agency. These probably will be "better" stores which they would rather keep but they are willing to let them go in an effort to make the deal happen.

Divest Wave 3 (Possible SpinCo): this will be any store they couldn't find a buyer for in Wave 1 and Wave 2. They will throw the discount brands in here as a token as well. I would expect to see anything in this bucket rebranded to the discount banner and format at KR/ACI expense. This group will be sold either entirely as one transaction to one buyer, or it will become SpinCo the "agile new competitor" with a price impact format so they can claim they're working to drive down prices. They will not include any facilities with this either, but if it becomes a spin they may be forced to source and sign up long term deals with other suppliers before the deal is done (Unified or whoever, honestly I'm not familiar with all of them). With appropriate long term contracts they should have a positive balance sheet as promised. Kroger may be forced to financially backstop this chain against failure for ten years unless it is acquired or "negligently managed" . In reality they're just creating a new competitor to the growing threat of Winco and giving it to ACI shareholders in exchange for their vote on the final merger deal.

In all of this, Save Mart has set up a management team with long-time Albertsons people who know how to properly run supermarkets. Save Mart is almost certainly going to be the "SpinCo". There likely will be no "SpinCo".
Kroger is going to have to offload entire banners (likely Albertsons) to make this deal happen. The crazy people in Cincinnati can throw fits about this, especially if they proceed to slap a Kroger sign on every store except for HT two days after the deal closes. They can't just load SpinCo with random stores from random banners, and have them use Kroger brands. SpinCo would then just be a puppet subsidiary of Kroger in that regard, and would ultimately kill the merger.

I expect Save Mart to be a temporary vehicle for all Albertsons banner stores (regardless of whether or not they compete with a Kroger) until Ahold likely scoops them up and becomes owner of the Albertsons banner. Save Mart could be taking Signature brands and quit their Topco contract.

Save Mart would keep Albertsons stores as Albertsons- there will be no conversions to discount formats with a lower pay structure- that would throw another wrench into the deal.

The FTC may have finally learned a steep lesson from the Haggen flameout. They didn't learn after the Smith's failures in MT/WY, the Raley's failures in Las Vegas, the Ralphs failures in NorCal, but they have learned after Haggen, as those aforementioned failures were small potatoes compared to Haggen. They are going to view this merger as a merger between two of the largest unionized supermarket chains.

This is how I think Albertsons will be carved up assuming the Kroger merger fails:

Texas: United goes to an investment firm. Albertsons Market would be merged back into the Southwest Division.
As for the D/FW stores, those could go to Brookshire's. I expect Randalls to be parted out in both Austin and Houston.

Safeway East: UNFI looks to be expanding again, so some of those Safeways could go into Shoppers Food. Otherwise, Kroger could buy some of those to put into Harris Teeter.

Shaw's/Star Market: Those stores would be parted out to Big Y, ShopRite, and Price Chopper, the latter having stores in the far out Boston suburbs. Market Basket is out of the question as they prefer to build their own stores.

Acme: Price Chopper, Big Y, or ShopRite operators could buy Acme stores piecemeal.

Denver: I expect the Safeway stores in the Rockies (along with Albertsons/Safeway in WY/SD) to be merged into Intermountain.
Safeway stores along the Front Range, from Fort Collins to Pueblo, should be sold to AWG, along with their Denver warehouse, which could be used form an AWG "western region", which would supply AWG members already in CO/WY/western SD/western NE/western KS. Those Safeway stores would take the Price Chopper name. The Safeway stores in eastern CO/western NE should be sold to Hy-Vee for their Dollar Fresh format.

The core parts of Albertsons (NorCal, PNW, Intermountain, Southwest, SoCal, Jewel) would be sold to Ahold.

[pseudo3d]

I think with a legitimate store divest program including entire divisions (including associated warehouses at a minimum- if manufacturing is not included then agreements for manufacturing to provide goods to the divested stores using current costing method for 10 years) and actual qualified buyers this merger may have a shot.

The other thing that some on that nomerger website should be concerned about is what happens to Albertsons if this merger doesn't go through...

Albertsons has spent SIGNIFICANTLY more on lobbying than Kroger to get this thing rammed through.

I don't think Kroger's lobbying effort with Boner will go anywhere. It is likely to hurt their cause more than it will help. Watch the lobbying activity by Albertsons. That is where the real stuff is going on. Kroger and Boner is a side show to poke at the unions.

Now I am very curious about the 2 line news article that basically makes it sound as if store divests actually occurring are imminent. Is this a new tactic companies use with the FTC?

Very strange that it's from a Bangladeshi reporter in Bangladesh. So unless Albertsons and Kroger start announcing store sales NOW I'd take it with a grain of salt.

Albertsons (or rather Apollo) seems deadset on this merger, I'd be surprised if a backup plan wasn't formulated that could involve a second buyer. One option I see is not directly selling anything to Kroger but spinning off the two northeastern divisions whole (maybe keeping a few stores) and merging with Ahold Delhaize.

[ClownLoach]

At the end of the day, I think Kroger is going to end up with Northern California, Chicago, the Mid Atlantic stores, the Northeastern stores, United (except for New Mexico), and some PNW / Intermountain / So Cal stores that don't overlap with Smith's, Fred Meyer or Ralph's.

Kroger isn't going to take the Austin Randalls stores and any Houston stores that overlap with an existing Kroger store will likely be divested.

Tom Thumb / Albertsons in DFW will likely be sold to HEB, Berkshire's or Berkshire Bros. There's a slight chance it also goes the SpinCo route and is eventually carved up over the next decade or so. Maybe Kroger keeps the Louisiana stores.

The SW division (AZ / NV / El Paso) is sold in its entirety to Save Mart. I also can see the New Mexico United operated Albertsons stores also going to Save Mart.

SpinCo takes the PNW, So Cal, Chicago, Mid Atlantic and Denver division divests. SpinCo will eventually close / sell stores piecemeal similar to how Albertsons LLC did. I'd expect this may be the way that Stater Bros gets some additional SoCal stores. I'd expect Denver will eventually be wound down similar to how Albertsons wound down its Denver division.

I am still very opposed to this merger. I believe that this will make Kroger a weaker competitor (if it goes through). The extra costs involved in this merger will mean that Kroger's pricing will increase and we'll see Kroger increase prices and close stores in order to remain solvent.

Consumers would be better off with Kroger remaining in its current state and Albertsons parting off its stores to multiple competitors versus Kroger absorbing everything that couldn't immediately get parted out.

Albertsons just holding a full on fire sale would still potentially be at risk of FTC actions, possibly creating more obstacles to transactions. Because of the financial shenanigans (has to be Apollo's work) they will need to move fast to carve up the company, and the FTC involvement in such dealings would slow the process down to a crawl. The FTC could also demand to see the books and learn that ACI is insolvent without the profits of NorCal, Chicago etc. then block any asset sale to Kroger at all with the intent of protecting competition elsewhere (even though there is minimal Kroger overlap on those deals). Basically are they better off having one big transaction deal with the FTC, vs having multiple transactions that all individually have to go through the FTC potentially taking a longer time?

And this whole SpinCo thing is not a sustainable company as a general supermarket chain with underperforming stores splattered across the map. The highest cost and lowest return way to facilitate any transaction is the SpinCo route. That is why I don't understand why the thought process on the board is that they're going to make this big, huge SpinCo organization. The bigger it is, the more spread out it is, and the more undesirable stores or underperforming divisions it holds-the faster it goes completely belly up. If there is not an actual merger with Kroger there is absolutely zero reason for a "SpinCo" being created.

SpinCo is the 2023 version of what Albertsons LLC was in 2006. It's a holding pace for assets that essentially will be sold off or closed. They're not going to bill it that way but that's what it will be. Albertsons LLC shed 2/3 of its stores before it ended up reuniting with the stores that were sold to SuperValu. I don't expect them to put much of anything valuable into SpinCo.

The point of SpinCo is to remove the stores that would cause obstacles to the merger from being obstacles to the merger. If they weren't junk assets, they could be sold to someone else. SpinCo is going to take the junk that nobody wants but would still provide regulatory issues if it wasn't separated out from the newly merged entity.

SpinCo could very well end up with QFC, the Albertsons/Safeway Denver division, the Albertsons/Safeway Dallas division, Randall's, as well as junk stores in Chicago, SoCal, and the Mid Atlantic. I wouldn't be surprised at all to see Mariano's end up as part of SpinCo.

The problem is that for the merger purposes they won't be allowed to create anything that is a problem organization. The FTC isn't going to allow them to sell the good parts and leave a collection of bad parts as they'll call that reducing competition. The ship has already sailed on that one. The closest thing I can think of that would be a viable SpinCo organization would be a chain of the price impact discount brands.

[ClownLoach]

They're going to follow the 7-Eleven Speedway model to the T, except for closing Pre approval.

Basically they are going to start by putting selected locations on the block and selling them to competitors either a store at a time (in surgical markets like SoCal where overlap is a mess) or in an entire group (like the more problematic Nevada and Arizona where a KR store is seemingly always on the other corner from an ACI store). This will be the wave 1 of divests and it is likely imminent that the "for sale" list gets posted of selected ACI and KR stores. The list was made cooperatively as previously disclosed - it isn't collusion if you announce it and the government doesn't immediately say no.

The divestitures are just straightforward sales to competitors. The SpinCo idea was BS from the start and they never intended to actually go through with it unless they were forced to - which of course by design the SpinCo would quickly degenerate into a group of zombie stores since they are not willing to part with any non-retail assets (warehouses, manufacturing plants, etc.). I'm betting that the rampant speculation on banners like Albertsons itself here is misguided too. They won't let any banner go unless they have a convenient need to sell it entirely (QFC although they'll surgically pick and choose what sells vs converts to Safeway, discount banners Rvler FoodsCo and Food4Less). Aside from QFC which could go anywhere I suspect that the SpinCo proposal would primarily be the discount brands and have a stated intent to convert other stores lumped in to one of those formats. They get to claim they've created an "agile new competitor focused on driving down food prices in the community" and who could say no to that?

As far as divesting without FTC approval? That's exactly what they've indicated they would do from day one, at least to start the process. And everyone is probably better off with the companies doing this vs. the FTC or state AGs because they love to point out problems like the Haggen debacle... But they are just as responsible for that failure as ACI.

So it's going to go down like this.

Divest Wave 1: sale to competitors self selected obvious overlaps (even fixing some overlaps that survived the ACI merger like Vons across the street from Albertsons). Groups like ACI southwest coupled with surgically selected in SoCal and PNW. They'll mainly be less desirable stores coupled with bad landlord relationship stores threatened with redevelopment. These are stores that if there was no opposition at all to the merger they'd just close them right away unless the rent was cheap. Intent is to get rid of what they would anyway at a profit and move to localized discussions with AGs etc. on any other situation they find undesirable.

Divest Wave 2: these will be additional stores added to the sale to competitor list which are selected through negotiations with a state AG or other governmental agency. These probably will be "better" stores which they would rather keep but they are willing to let them go in an effort to make the deal happen.

Divest Wave 3 (Possible SpinCo): this will be any store they couldn't find a buyer for in Wave 1 and Wave 2. They will throw the discount brands in here as a token as well. I would expect to see anything in this bucket rebranded to the discount banner and format at KR/ACI expense. This group will be sold either entirely as one transaction to one buyer, or it will become SpinCo the "agile new competitor" with a price impact format so they can claim they're working to drive down prices. They will not include any facilities with this either, but if it becomes a spin they may be forced to source and sign up long term deals with other suppliers before the deal is done (Unified or whoever, honestly I'm not familiar with all of them). With appropriate long term contracts they should have a positive balance sheet as promised. Kroger may be forced to financially backstop this chain against failure for ten years unless it is acquired or "negligently managed" . In reality they're just creating a new competitor to the growing threat of Winco and giving it to ACI shareholders in exchange for their vote on the final merger deal.

In all of this, Save Mart has set up a management team with long-time Albertsons people who know how to properly run supermarkets. Save Mart is almost certainly going to be the "SpinCo". There likely will be no "SpinCo".
Kroger is going to have to offload entire banners (likely Albertsons) to make this deal happen. The crazy people in Cincinnati can throw fits about this, especially if they proceed to slap a Kroger sign on every store except for HT two days after the deal closes. They can't just load SpinCo with random stores from random banners, and have them use Kroger brands. SpinCo would then just be a puppet subsidiary of Kroger in that regard, and would ultimately kill the merger.

I expect Save Mart to be a temporary vehicle for all Albertsons banner stores (regardless of whether or not they compete with a Kroger) until Ahold likely scoops them up and becomes owner of the Albertsons banner. Save Mart could be taking Signature brands and quit their Topco contract.

Save Mart would keep Albertsons stores as Albertsons- there will be no conversions to discount formats with a lower pay structure- that would throw another wrench into the deal.

The FTC may have finally learned a steep lesson from the Haggen flameout. They didn't learn after the Smith's failures in MT/WY, the Raley's failures in Las Vegas, the Ralphs failures in NorCal, but they have learned after Haggen, as those aforementioned failures were small potatoes compared to Haggen. They are going to view this merger as a merger between two of the largest unionized supermarket chains.

This is how I think Albertsons will be carved up assuming the Kroger merger fails:

Texas: United goes to an investment firm. Albertsons Market would be merged back into the Southwest Division.
As for the D/FW stores, those could go to Brookshire's. I expect Randalls to be parted out in both Austin and Houston.

Safeway East: UNFI looks to be expanding again, so some of those Safeways could go into Shoppers Food. Otherwise, Kroger could buy some of those to put into Harris Teeter.

Shaw's/Star Market: Those stores would be parted out to Big Y, ShopRite, and Price Chopper, the latter having stores in the far out Boston suburbs. Market Basket is out of the question as they prefer to build their own stores.

Acme: Price Chopper, Big Y, or ShopRite operators could buy Acme stores piecemeal.

Denver: I expect the Safeway stores in the Rockies (along with Albertsons/Safeway in WY/SD) to be merged into Intermountain.
Safeway stores along the Front Range, from Fort Collins to Pueblo, should be sold to AWG, along with their Denver warehouse, which could be used form an AWG "western region", which would supply AWG members already in CO/WY/western SD/western NE/western KS. Those Safeway stores would take the Price Chopper name. The Safeway stores in eastern CO/western NE should be sold to Hy-Vee for their Dollar Fresh format.

The core parts of Albertsons (NorCal, PNW, Intermountain, Southwest, SoCal, Jewel) would be sold to Ahold.

Problem with this scenario is that Kroger has a contract that says the deal is off if divestiture count exceeds 650. You're already out of the merger just releasing the Albertsons banner. I'm going to have to assume that number represents the lowest number of stores lost that make a transaction worth the expense. With less stores acquired they may not be any more profitable, possibly less. They have to get some extra market share in existing markets (like picking up additional stores in SoCal to complement Ralphs for example) otherwise there really isn't any reason for a merger or even buying other divisions. We can be assured that if they announced tomorrow deal is off, then a few months later tried to sell a few divisions, say Jewel and Acme, to Kroger they would be told "absolutely not" by the FTC.

Also the Price Impact banners are union in some areas. F4L in SoCal is unionized. They could throw a bone to the unions and invite them to unionize anything that currently isn't, like Albertsons in Arizona. The unions might back down with an agreement that any non union Kroger or Albertsons format gets a union after the merger (as long as the staff approves it of course).

[HCal]

Also the Price Impact banners are union in some areas. F4L in SoCal is unionized. They could throw a bone to the unions and invite them to unionize anything that currently isn't, like Albertsons in Arizona. The unions might back down with an agreement that any non union Kroger or Albertsons format gets a union after the merger (as long as the staff approves it of course).

They wouldn't need an agreement for that. The approval of the staff is the only thing needed to form a union. The employer doesn't need to agree to it.

[retailfanmitchell019]

Problem with this scenario is that Kroger has a contract that says the deal is off if divestiture count exceeds 650. You're already out of the merger just releasing the Albertsons banner. I'm going to have to assume that number represents the lowest number of stores lost that make a transaction worth the expense.

Here's a scenario:
Kroger can keep some of the Albertsons stores left in TX/Louisiana with a gentlemen's agreement to convert the stores to the Kroger banner 6 months after the ink dries out.
Kroger also gets to buy Vons, Tom Thumb, and Safeway stores they don't compete with (except for PNW, where they'd dump off QFC). That's how they'd gain market share.
Converting divested stores to a price impact format is not going to work in higher income areas with Albertsons stores.

The problem is that for the merger purposes they won't be allowed to create anything that is a problem organization. The FTC isn't going to allow them to sell the good parts and leave a collection of bad parts as they'll call that reducing competition. The ship has already sailed on that one. The closest thing I can think of that would be a viable SpinCo organization would be a chain of the price impact discount brands.

Not trying to be argumentative here, but the point is, there will be no SpinCo.
Save Mart is going to be the SpinCo with its strong management team in place. I assume that the only price impact stores they get and will operate divested are Food 4 Less/Foods Co stores, converting those all to FoodMaxx (except Chicago, which will be parted out).
And that brings me to another issue: Kroger owns the Food 4 Less name, but franchises it out to independents. Kroger has the rights to the Food 4 Less name in all of SoCal, sans Kern, Santa Barbara, and SLO counties.

[storewanderer]

Also the Price Impact banners are union in some areas. F4L in SoCal is unionized. They could throw a bone to the unions and invite them to unionize anything that currently isn't, like Albertsons in Arizona. The unions might back down with an agreement that any non union Kroger or Albertsons format gets a union after the merger (as long as the staff approves it of course).

They wouldn't need an agreement for that. The approval of the staff is the only thing needed to form a union. The employer doesn't need to agree to it.

Raleys previously settled a strike or near strike in this manner sometime in the past decade or so. They had some random CA stores that were not union. As part of their negotiations with the union to stop or avert the strike, they agreed to unionize those non-union CA stores they had. Ultimately the employees make the decision but if the store owner says the store should go union the employees are very likely to vote in the union. Kroger could do the same thing or whoever buys the AZ stores could do the same thing and say okay union, we will go ahead and let all of those non-union stores be union shops now.

[storewanderer]

Problem with this scenario is that Kroger has a contract that says the deal is off if divestiture count exceeds 650. You're already out of the merger just releasing the Albertsons banner. I'm going to have to assume that number represents the lowest number of stores lost that make a transaction worth the expense.

Here's a scenario:
Kroger can keep some of the Albertsons stores left in TX/Louisiana with a gentlemen's agreement to convert the stores to the Kroger banner 6 months after the ink dries out.
Kroger also gets to buy Vons, Tom Thumb, and Safeway stores they don't compete with (except for PNW, where they'd dump off QFC). That's how they'd gain market share.
Converting divested stores to a price impact format is not going to work in higher income areas with Albertsons stores.

The problem is that for the merger purposes they won't be allowed to create anything that is a problem organization. The FTC isn't going to allow them to sell the good parts and leave a collection of bad parts as they'll call that reducing competition. The ship has already sailed on that one. The closest thing I can think of that would be a viable SpinCo organization would be a chain of the price impact discount brands.

Not trying to be argumentative here, but the point is, there will be no SpinCo.
Save Mart is going to be the SpinCo with its strong management team in place. I assume that the only price impact stores they get and will operate divested are Food 4 Less/Foods Co stores, converting those all to FoodMaxx (except Chicago, which will be parted out).
And that brings me to another issue: Kroger owns the Food 4 Less name, but franchises it out to independents. Kroger has the rights to the Food 4 Less name in all of SoCal, sans Kern, Santa Barbara, and SLO counties.

What will be interesting is what happens if things don't work out for Save Mart to take on a significant number of divested stores. The people running Save Mart are far too experienced to take a lousy deal like the Haggen people took. I suppose this could potentially cause Kroger to go look for "another Haggen" (who could that possibly be) who they may be able to pull a fast one on, but I think between the union and FTC as pointed out in a post above maybe someone has finally learned their lesson about divesting stores to unqualified buyers without the proper infrastructure.

I see the opposition to this merger gaining a lot of steam.

Meanwhile the big reason they supposedly need to merge, Amazon, seems to be seriously floundering in food.

[retailfanmitchell019]

What will be interesting is what happens if things don't work out for Save Mart to take on a significant number of divested stores. The people running Save Mart are far too experienced to take a lousy deal like the Haggen people took. I suppose this could potentially cause Kroger to go look for "another Haggen" (who could that possibly be) who they may be able to pull a fast one on, but I think between the union and FTC as pointed out in a post above maybe someone has finally learned their lesson about divesting stores to unqualified buyers without the proper infrastructure.

I see the opposition to this merger gaining a lot of steam.

Meanwhile the big reason they supposedly need to merge, Amazon, seems to be seriously floundering in food.

I guess "another Haggen" would be Raley's (for stores out West), and SpartanNash (for the Midwest stores: Mariano's, F4L, and Jewel stores in Bloomington-Normal).

And it's not just Amazon. Walmart, the other reason for this merger, (even though they will continue to be #1) is maxed out in market share.

[ClownLoach]

Fresh from the farm, a new shipment of steer manure has been plopped on our favorite website, Pravda krogeralbertsons.com

Apparently if this merger happens then everyone everywhere is going to start hiring! A job for you, and a job for you, and a job for you! Jobs everywhere!

"If this merger turns out to increase the productivity of the grocery business, and the food products business in the U.S., that's going to lead to a net increase in jobs across all sectors in the U.S."
Steven Peterson

University of Idaho, Associate Clinical Professor of Economics

And here is more propaganda another expert opinion from a CEO who hasn't seen the latest spell check technology. We need to cheer on this greed experimentation!

"The market for groceries is the latest to grab headlines for what is both normal and heathy: dynamic responses to an evolving economic landscape. Recession, inflation, and new consumer patterns with online ordering and home delivery means suppliers must adapt or stagnate. How companies configure themselves is just one form of adaptation and we should cheer the experimentation and ward off political opportunism that would control or direct how private capital reacts to a changing world."

Kent Lassman

Competitive Enterprise Institute, President and CEO