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(Bloomberg)—Kroger Co. is in talks about a tie-up with rival Albertsons Cos. in a deal that would create a US grocery giant, people familiar with the matter said.

An agreement could be reached as soon as this week, the people said, asking not to be identified discussing confidential information. No final decisions have been made and talks could still be delayed or falter, according to the people.

The exact structure and price of the deal couldn’t immediately be learned. Any potential transaction, if agreed, may face antitrust scrutiny.

Representatives for Albertsons and Kroger couldn’t immediately be reached for comment.

Boise, Idaho-based Albertsons has been studying options to boost growth, having seen sales gains during the Covid-19 pandemic cool at the same time as labor and logistics expenses have been rising.

Its shares rose as much as 11% on Thursday. The stock was up 6.4% at 10:44 a.m. in New York, giving the company a market value of about $14.5 billion. Kroger fell 1.5% to $45.33, giving the company a market value of about $33 billion.

Albertsons in February announced a strategic review of its businesses, which include the Acme, Tom Thumb and Shaw’s chains as well as its eponymous stores, that raised the prospect of potential disposals to help create value for shareholders.

The grocer is still almost 30% owned by Cerberus Capital Management, the New York private equity firm that first invested in the business in 2006. Albertsons emerged from Cerberus’s portfolio when it held an initial public offering in 2020

Cincinnati, Ohio-based Kroger, meanwhile, grew less sharply than Albertsons through the coronavirus pandemic but has held on to more of its gains.

Purchasing Power

A potential tie-up would give the combined entity increased purchasing power, a sprawling shopper-loyalty program and greater heft in technology investments as online grocery sales increase. The resulting giant would be of comparable size in groceries to Walmart Inc., the US market leader.

But any deal would face tough scrutiny from US antitrust authorities, said Jennifer Bartashus, an analyst at Bloomberg Intelligence. The US Federal Trade Commission is already subjecting mergers to close examination, and a Kroger-Albertsons deal would join two large players that directly compete in much of the country.

“This is the type of transaction that really looks good on paper, but the actual practicality of achieving regulatory approval by the FTC could be difficult,” Bartashus said. “If you think about the store bases of the two respective entities, there is a lot of overlap in very competitive markets.”

–With assistance from Brendan Case.

© 2022 Bloomberg L.P.

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