[co-author: Stephanie Kozol]*
As litigation to block the proposed Kroger-Albertsons merger wages on at the state and federal level, four state attorneys general (AG) have jumped into the fray in support of the merger as the cases heat up on all fronts.
As previously reported, on February 26, the Federal Trade Commission (FTC) and a coalition of nine state AGs filed a complaint in the U.S. District Court for the District of Oregon seeking to enjoin Kroger’s proposed $24.6 billion acquisition of Albertsons. The FTC, which was comprised of only three Democratic commissioners at the time, voted unanimously to authorize the lawsuit. (Since the vote, two additional Republican commissioners have been sworn in, but there have been no subsequent votes on this proposed merger.) The Arizona, California, the District of Columbia, Illinois, Maryland, Nevada, New Mexico, Oregon, and Wyoming AGs also joined the lawsuit. The complaint was filed shortly after Colorado regulators raised similar concerns in state court, which subsequently halted the proposed deal.
The district court complaint alleges that the proposed merger would stifle competition in the supermarket industry, leading to higher grocery prices for millions of Americans. The lawsuit also cites concerns that the proposed deal would harm essential grocery store workers, who would face the threat of dwindling wages, diminished benefits, and deteriorating working conditions should the merger be permitted to move forward. Although Kroger and Albertsons agreed to divest more than 500 grocery stores nationwide to C&S Wholesale Grocers (C&S) in an attempt to satisfy competition concerns, the FTC has expressed doubts that the proposed divestiture would allow C&S to meaningfully compete with Kroger’s market share.
However, a group of four state AGs disagree. On August 14, a coalition of AGs from Ohio, Alabama, Georgia, and Iowa sought leave from the district court to file an amicus curiae brief opposing the preliminary injunction. The brief alleges that the federal court action is premised on the FTC’s erroneous decision to limit the relevant market for analyzing competitive effects of the acquisition to supermarkets, a market definition that the FTC has itself rejected in the past. In reality, the state AGs argue, shoppers can go to “supercenters, club grocers, discount grocers, dollar grocers, drug grocers, and regional and national supermarket chains”— all of which directly compete with Kroger and Albertsons.
The brief also criticizes the FTC’s objection to the proposed divestiture plan, claiming that “the objections border on pretextual.” In the past, the state AGs argue, the FTC has found C&S to be a suitable buyer in divestiture transactions. Ultimately, the brief argues that the acquisition will increase competition in the grocery market: “[i]n claiming that the acquisition will have exactly the opposite effects, the Commission is oblivious to the plain-as-day economic reality that raising prices, worsening services, and lowering quality–its allegations–would actually weaken Kroger as a retailer and drive consumers into the waiting arms of its many competitors.”
Hearings to evaluate whether the proposed deal will be permitted to move forward are set to begin on August 26.
Even if Kroger and Albertsons ultimately prevail before the district court, the companies will still have to navigate legal challenges in other forums.
In state court, Kroger and Albertsons must face actions brought by AGs in Washington and Colorado to block the proposed merger. In Washington, regulators allege that the proposed merger violates Washington’s Consumer Protection Act. The complaint contends that the proposed divestiture does not change the fact that one grocer would still enjoy a near monopoly in the state given that Kroger and Albertsons make up nearly 50% of all grocery stores in Washington.
The Colorado lawsuit, which remains pending, alleges violations of Colorado’s State Antitrust Act while seeking $1 million in civil penalties for the agreements. The complaint also seeks to enjoin the companies from enforcing or further entering into such agreements and alleges that Kroger and Albertsons improperly entered into no-poach and no-solicitation agreements after a strike at a chain of stores owned by Kroger.
The FTC has also filed an administrative complaint to block the proposed merger which remains pending before an administrative law judge. On August 19, Kroger filed a motion in the U.S. District Court for the Southern District of Ohio seeking a preliminary injunction to halt the administrative action. The motion argues that it is unconstitutional for an administrative law judge to preside over the action.
Although the future of these enforcement actions remains unclear, one thing is certain — state AGs have diverging views on antitrust issues. As state regulators continue to become more active in the antitrust space, businesses should prepare for more localized and varied enforcement of antitrust laws.
Additional articles on state AG offices in the antitrust space include:
*Senior Government Relations Manager
