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Shoppers love WA’s move to block Kroger-Albertsons merger, but legal experts are puzzled

By Paul Roberts, The Seattle Times
Published: January 21, 2024, 6:03am

A lawsuit by Washington state to block a proposed $25 billion merger between grocery giants Kroger and Albertsons is getting some qualified kudos from legal experts and lots (and lots) of love from Washington grocery shoppers.

The suit, filed Monday in King County Superior Court, is the first state or federal attempt to halt the acquisition of Albertsons, which owns Safeway and Haggen, by Kroger, which owns QFC and Fred Meyer.

And that’s fine with people like Mark Sindelar, who lives near Redmond, Washington, and is one of nearly 600 people who responded to a Seattle Times callout, most of them in support of the lawsuit.

“Years back, we had Safeway, Albertsons, QFC and Fred Meyer,” Sindelar said. “This merger will give us Kroger, Kroger, Kroger, or Kroger.”

But the timing of Monday’s suit is raising questions about the legal strategy of state Attorney General Bob Ferguson, who is running for governor.

“To me, it’s just Ferguson rattling his cage for attention, for his base,” said Renton, Washington, resident Timothy Lambro, echoing a sentiment expressed by several readers.

The suit may also have raised tensions between Ferguson and the Federal Trade Commission, the nation’s top merger regulator, which traditionally collaborates with states on big mergers but usually takes the lead on any legal action.

“I can understand why the FTC would be irritated,” said John Kirkwood, an antitrust expert and former FTC official who teaches law at Seattle University. The FTC has just spent months in “a major effort to analyze this merger … and so to have one state AG go out first — this is not pleasing.”

According to news reports last week, the FTC had faced a Wednesday deadline to decide whether to sue, but had agreed with the merging companies to extend the deadline into February — even as reports surfaced that Washington state intended to file a lawsuit.

Federal and Washington state officials likely have been coordinating legal strategy around the merger “for the past many, many months,” said Doug Ross, an antitrust expert at the University of Washington School of Law.

“The fact that Ferguson decided to file a lawsuit on (Martin Luther King Jr. Day) a day or two before the … FTC was to make up its mind, suggests there was a complete breakdown in coordination between the FTC and the state of Washington,” said Ross.

The Attorney General’s Office declined to say whether the suit’s timing was connected to any FTC actions. “It’s not unusual for us to decide to file our own case even when there may be other investigations going on, particularly where there are outsized impacts in Washington,” Brionna Aho, spokesperson for the Attorney General’s Office, said in an email Tuesday.

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“Our goal is to get in front of a judge and stop this proposed merger from happening,” Aho added. “As far as timing, we have been working on this case for some time. We file cases when they’re ready.”

The FTC also declined to comment on the timing of Washington’s lawsuit because the agency does not publicly discuss internal matters related to ongoing investigations.

But an FTC official said Washington’s lawsuit won’t hamper the FTC’s investigation of the merger or its decision over whether or when to sue to block the merger. The official requested anonymity because they were not authorized to discuss the matter with the press.

Monday’s lawsuit and its complicated aftermath are the latest twists in a convoluted storyline that began in October 2022, when Kroger and Albertsons announced the deal, which requires federal and state approval.

From the start, Kroger and Albertsons argued that the merger is necessary: Only by combining will the firms have the scale to compete successfully against Amazon and especially Walmart.

Kroger and Albertsons also promised to preserve grocery competition by collectively selling off 413 locations, including 104 in Washington state, to another grocery company, New Hampshire-based C&S Wholesale Grocers.

But consumer and labor groups and some academics — and many shoppers — have continued to insist the merger would put too much of the U.S. grocery market in the hands of a single company.

Those concerns were especially pronounced in Washington, where Kroger and Albertsons have more than 300 locations and account for roughly half of all grocery sales, according to the Attorney General’s Office.

Around two-thirds of those locations are in the Greater Seattle area, where the two retailers often appear to be the other’s biggest local competitor. In some smaller communities, Kroger and Albertsons are the only major grocery retailers.

Loss of competition is one of Ferguson’s two main arguments for blocking the merger.

By combining “the two largest — and, in some areas, the only — supermarkets in many communities across Washington,” the proposed merger “is likely to lead to higher prices, lower quality, and less variety in many local markets throughout Washington,” the suit states.

The Attorney General’s Office also contends that the plan to sell off stores is “woefully inadequate” to restore the competition lost through the proposed merger.

C&S Wholesale Grocers is mainly a wholesaler with only a relatively small retail operation — and no locations in Washington. C&S also has little experience operating pharmacies or fueling stations, which are found at many Kroger and Albertsons locations, the suit states.

As evidence, the lawsuit points to an unsuccessful divestiture attempt that followed Albertsons’ 2015 acquisition of Safeway. In that case, the retailers spun off 146 locations, including 26 in Washington, to Haggen, a small Bellingham-based regional supermarket chain, according to the suit.

Within a year, Haggen had foundered and was forced to close or sell most of the stores — many of which were reacquired by Albertsons, according to the lawsuit.

Many readers shared Ferguson’s concerns about another Haggen-like debacle, or made reference to another troubled corporate acquisition: Rite Aid’s 2020 acquisition Seattle-based Bartell Drugs, and the subsequent closure of a third of Bartell locations after Rite Aid’s bankruptcy.

“Seattle does not need another Rite-Aid/Bartell’s boondoggle,” said Fritz Kessler, a former Seattle resident currently attending school out-of-state, who responded to the Times callout.

Ferguson isn’t the only regulator skeptical of the merger.

Last week, California Attorney General Rob Bonta spoke of suing over similar concerns, but said a decision hasn’t been made and noted that, “Right now there’s not a lot of reason not to sue,” according to a report by Reuters.

FTC Chair Lina Khan has publicly voiced skepticism that selling off locations is an effective way to preserve competition.

During a TV interview last September in Las Vegas, where Khan was attending a “listening session” for residents about the Kroger-Albertsons merger, the FTC chair noted that when regulators evaluate a merger, they must account for the fact that some efforts to preserve competition “in the past have failed.”

“Enforcers sometimes have allowed mergers to go through and accept those promises and commitments. But historically, it’s been very difficult to actually enforce them,” Khan said during another interview. “Once you allow the merger to go through, the competition that’s structurally existing in the market has gone.”

Both interviews were reported in BoiseDev, a Boise, Idaho-area news site.

Kirkwood, the Seattle University law professor, thinks Khan’s FTC “will want to try to block the whole thing and will argue that the proposed ‘fix’, as it’s called, wouldn’t work.”

If Khan does intend to try to block the merger at the federal level, Ferguson’s decision to go early might seem puzzling, legal experts acknowledge — especially given that Ferguson’s team was likely familiar with the FTC’s developing strategy and the ongoing negotiations with Kroger and Albertsons.

But Kirkwood and other legal experts say Ferguson’s early move has some logic to it.

Even if the FTC sues, a court could still approve the merger, especially since in many parts of the country, the companies aren’t in the same markets, says Kirkwood.

The FTC and the companies could instead agree to an even larger divestiture plan that envisions even more store sales in states, such as Washington, where the two companies have a high overlap.

In that case, Washington may have sued because it didn’t like how Washington communities were being treated in any negotiations about a settlement or a remedy.

“Negotiations over fixes are very location specific,” said Daniel Rubinfeld, a professor of law at New York University School of Law and a former deputy assistant attorney general for antitrust in the U.S. Department of Justice.

“That’s the inference I would draw (from Washington’s lawsuit) that the state AG believes there’s some specifics about the way this merger would affect residents of Washington that would not be picked up by anything FTC would do.”

In fact, although Washington’s lawsuit appears to indicate that the state has no confidence in C&S Wholesale as a retailer, regardless of the number of locations it acquires in the merger, some legal experts think the state’s tough position could be intended to force more concessions from the merging parties.

The attorney general “might be saying, in theory, there is a solution that would be acceptable, but you haven’t offered it yet,” said William Kovacic, an antitrust expert at George Washington University Law School.

The attorney general “wouldn’t speculate whether there could be a version of a merger that would be lawful,” Aho said. “The proposal the companies have announced is not lawful, and would be harmful to Washingtonians.”

In fact, for any speculation of indignation at the FTC over Washington’s lawsuit, the federal agency might actually view the state’s move as useful, Kirkwood said.

The FTC can point to the suit by Washington and a possible suit in California and argue that individual states “may demand more things and so you, Kroger, would be better off settling with us,” Kirkwood says.

“I think the impact of (Ferguson’s) suit will be to create this sense, this notion in the air that this merger is a serious problem. And that will help the FTC.”