La Jolla Vons to be converted to Pavilions

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HCal
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Re: La Jolla Vons to be converted to Pavilions

Post by HCal »

ClownLoach wrote: February 6th, 2023, 9:25 pm Here's the problem with that store count idea: the areas with the highest overlaps also are the highest volumes. They are not going to want to let a single store in the top two quartiles of run rate go without a fight. If they divested 30% of the Albertsons Co's stores but those were mostly in SoCal, Oregon and Washington that could easily represent more than 50% of the overall revenue being divested.
The FTC, and not Kroger, decides which markets require divestitures. And it's fairly obvious that the most divestitures will be needed in the areas where there is the most overlap, which as you said, happen to be the highest volume stores. Kroger knew that going into this. They wouldn't have agreed to the merger if they weren't prepared to give up a substantial number of stores in SoCal, Oregon and Washington.

ClownLoach wrote: February 6th, 2023, 9:25 pmNo reason to buy if any more than a hundred West Coast stores go. They're better off letting Albertsons bleed out from the self inflicted wound of the $4B dividend payment then going in and piecing out the chain as its broken up.
If that were the case, they wouldn't have gotten involved with this at all. They could have let Albertsons sell itself to someone else, or just wither away natuarlly. If they back out because of FTC demands, they are throwing away $600 million in breakup fee, granted it's not a huge amount for them.
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Re: La Jolla Vons to be converted to Pavilions

Post by storewanderer »

HCal wrote: February 6th, 2023, 11:27 pm
ClownLoach wrote: February 6th, 2023, 9:25 pm Here's the problem with that store count idea: the areas with the highest overlaps also are the highest volumes. They are not going to want to let a single store in the top two quartiles of run rate go without a fight. If they divested 30% of the Albertsons Co's stores but those were mostly in SoCal, Oregon and Washington that could easily represent more than 50% of the overall revenue being divested.
The FTC, and not Kroger, decides which markets require divestitures. And it's fairly obvious that the most divestitures will be needed in the areas where there is the most overlap, which as you said, happen to be the highest volume stores. Kroger knew that going into this. They wouldn't have agreed to the merger if they weren't prepared to give up a substantial number of stores in SoCal, Oregon and Washington.

ClownLoach wrote: February 6th, 2023, 9:25 pmNo reason to buy if any more than a hundred West Coast stores go. They're better off letting Albertsons bleed out from the self inflicted wound of the $4B dividend payment then going in and piecing out the chain as its broken up.
If that were the case, they wouldn't have gotten involved with this at all. They could have let Albertsons sell itself to someone else, or just wither away natuarlly. If they back out because of FTC demands, they are throwing away $600 million in breakup fee, granted it's not a huge amount for them.
The FTC may propose what markets require divestitures but ultimately they work very closely with the merging companies to determine what is to be divested. This is why in Albertsons/Safeway nothing was divested in Colorado or Cheyenne. Something happened there to prevent that- Safeway sitting on a lot of poorly performing stores, lack of potential buyers, something... I don't know what.

I don't know how this will play out but basically Kroger agreed to give up a limit of 650 stores in the merger agreement. If FTC pushes for say 750 stores I think it will still be a go, but maybe not. Maybe 650 really is "the number." I think how it plays out whole divisions vs. piecemeal stores will also play a part. Also if Kroger will agree to give up stores where there is no overlap but they just don't want the stores (small low volume stores, etc.).
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Re: La Jolla Vons to be converted to Pavilions

Post by veteran+ »

If this goes through in any way, the FTC should be dissolved and all the laws that have been on the books since FDR and before (however diluted and changed) should be erased.

We will enter a heightened era of blatantly coddling corporations to satisfy their wishes.

Reducing choice, disempowers and diminishes consumers and employees.

Brave new world!

:evil:
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Re: La Jolla Vons to be converted to Pavilions

Post by ClownLoach »

HCal wrote: February 6th, 2023, 11:27 pm
ClownLoach wrote: February 6th, 2023, 9:25 pm Here's the problem with that store count idea: the areas with the highest overlaps also are the highest volumes. They are not going to want to let a single store in the top two quartiles of run rate go without a fight. If they divested 30% of the Albertsons Co's stores but those were mostly in SoCal, Oregon and Washington that could easily represent more than 50% of the overall revenue being divested.
The FTC, and not Kroger, decides which markets require divestitures. And it's fairly obvious that the most divestitures will be needed in the areas where there is the most overlap, which as you said, happen to be the highest volume stores. Kroger knew that going into this. They wouldn't have agreed to the merger if they weren't prepared to give up a substantial number of stores in SoCal, Oregon and Washington.

ClownLoach wrote: February 6th, 2023, 9:25 pmNo reason to buy if any more than a hundred West Coast stores go. They're better off letting Albertsons bleed out from the self inflicted wound of the $4B dividend payment then going in and piecing out the chain as its broken up.
If that were the case, they wouldn't have gotten involved with this at all. They could have let Albertsons sell itself to someone else, or just wither away natuarlly. If they back out because of FTC demands, they are throwing away $600 million in breakup fee, granted it's not a huge amount for them.
I think the 650 count assumes that a lot of the little low volume Safeway stores in the PNW divest where two or three compete with one Fred Meyer get divested. Kroger seems to have little interest in small market stores, and they like to consolidate locations in markets where they have many stores to maximize their profit leverage (see Long Beach, CA as an example where Ralphs under Yucaipa and FM added a bunch of stores to great success but Kroger then eliminated half of the locations and those that remain have long lines and poor conditions). That could turn into an argument for the merger if Kroger thinks Albertsons has too many stores in an area and they feel they can maintain share and volume if stores divest.

But ultimately there is a back and forth process of negotiating with the FTC, State AGs etc versus a single download list that says Stores A, B and C must go while stores D, E, and F are allowed to stay. It's going to be more "in this area you'll control 8 out of 10 stores which is too much so you need to give up one or two" coupled with "in this other area there are only two stores and you'll own both so one has to divest let us know which one" as well as "by the way overall in that county you'll control 52 out of 70 stores, we think that you need to give up 7 total so factor that into the areas where we said divest one or two out of ten. Give us your divestiture list next week with rationale for each decision and we will either approve or disapprove."

The noise in the west around real estate is a big factor. If that was not brought into the process it's entirely possible that SpinCo or whoever could potentially get stuck with a bunch of stores that are not viable due to lease issues with a developer. Again many factors will go into play here including geography, competition, profitability by location, volume by location, lease term, how to handle divestiture of owned stores (can they remain landlord and sign a lease, or transfer the real estate), and more. Despite the fact that these companies basically blew it in the 2000's and permanently lost most of their market share they'll argue that left them with so little market share that unless they're the only game in town in one area merging is not a statistically significant factor in the competition. I firmly believe it will have to work out to a store by store decision if the merger is allowed to be completed as there is just so much noise. A developer proposing to tear down a operating traditional American supermarket more than a decade ago would be considered sacrilege. Now it's everyday reality.

I personally am against the merger and I believe that it should be blocked. I do think Albertsons started out shopping divisions and probably wound up in a discussion with Kroger that turned into "let's see if we can just buy you outright" which pleased the PE team of Apollo and Cerberus. For Albertsons they mismanaged the company and allowed for too many problematic divisions where they are in worst place while others in first place shoulder the load. Kroger is superior at the portfolio management process with their divisions and probably would be a buyer of multiple units in a break up (NorCal, Chicago, Northeast as discussed), problem divisions like Houston should be liquidated, and the remaining balance of stores would be good divisions like SoCal and PNW which would compliment an owner like Save Mart or Raleys and take them from a small regional to a broader multi state effort, or a buyer like Ahold who could slip in with zero overlap and then zero divestiture in these successful divisions. Strange enough but Amazon would be a good buyer for Albertsons despite their demonstrated incompetence so far in grocery stores; they do have the financial strength to stabilize the company and stand up against Walmart and Kroger. If they could add meaningful technology that actually helped shoppers to what is already a solid operating store with appropriate pricing levels they could be a massive success story. As far as the breakup fee goes it is pocket change to Kroger and I wouldn't be the least bit surprised if that amount paid got worked into a future deal in an asset sale breakup of Albertsons.
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Re: La Jolla Vons to be converted to Pavilions

Post by storewanderer »

I do not consider a further expansion of Raleys to be a good idea or a winning proposition in the slightest. Something has happened with Raleys and it is not the same as it was a few years ago. Save Mart, given the new management team appointed, I have some optimism something may work out there.
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