Within a day after the $25 billion merger collapsed in court, Kroger and Albertsons each had plans to move forward with stock buybacks to boost stock prices and reward investors.
The two largest U.S. grocers have argued that their partnership will lower prices for shoppers. Doing so, they said, would give it more bargaining power with suppliers and make it easier to do business with the much larger retailers it competes with for grocery sales, such as Walmart, Costco and Amazon.
The Biden administration opposes this, and the Federal Trade Commission says in a lawsuit against the merger that the deal could reduce workers’ wages and bargaining power, reduce industry competition and drive up food prices. Ta.
Since the contract has already expired, it is impossible to know if such a thing happened. However, U.S. District Judge Adrian Nelson of Oregon wrote in a ruling Tuesday that the chains’ promises to invest in lower prices were “not merger-specific or verifiable, meaning shoppers will not benefit from it.” There is no guarantee that it will be accepted,” he wrote, expressing skepticism.
“Promises to make price investments are not legally binding and courts must give limited weight to non-binding promises made during these proceedings,” she said. A Superior Court judge in Seattle agreed with Nelson’s ruling and issued an injunction against the merger on Tuesday. On Wednesday, Albertsons terminated the deal and sued Kroger, alleging the former partner did not do enough to obtain regulatory approval.
The drama unfolded just as the federal government released new inflation data for November showing that food prices continue to creep up.
The cost of food eaten at home increased by 1.6% last month compared to the same period last year. Although the increase was small compared to the overall annual inflation rate of 2.7%, the 0.5% month-on-month increase accelerated after rising 0.1% from September to October. . Food prices are volatile, but a sharper-than-expected inflation report released Thursday showed big increases in items ranging from produce to poultry.
Kroger on Wednesday reiterated its “commitment to lower prices,” saying it has invested billions of dollars in cost reductions over the past two decades. The chain also said it has spent $2.4 billion on pay increases and up to $3.8 billion in annual store improvements since 2018. Albertsons similarly pledged to remain focused on “improving our customer value proposition.”
Neither company disclosed details of their price-cutting plans, and Albertsons declined further comment. Kroger said only that it provides value to customers “through competitive pricing, loyalty discounts, personalized benefits, fuel benefits and a unique private brand portfolio.”
At the same time, both grocery chains announced this week that they are pouring billions of dollars into initiatives that will benefit shareholders.
After a hiatus of more than two years, Kroger announced a $7.5 billion stock buyback, of which $5 billion will be repurchased at an accelerated pace. That’s the same amount Kroger estimated Wednesday has spent reducing prices over the past 21 years. . Albertsons announced it would buy back $2 billion worth of its own stock and increase the dividend it pays holders by 25%.
Share buybacks (which reduce the number of shares available and boost the value of the remaining shares) and dividend payments benefit all investors, especially those with the largest shares. Top shareholders typically include large Wall Street companies with the financial resources to buy and hold millions of shares in publicly traded companies.
Vanguard Group, the nation’s largest mutual fund provider, and BlackRock, the world’s largest asset manager with more than $11.5 trillion under its oversight, hold the largest stakes in Albertsons. Wall Street investment firms Cerberus Capital Management, Vanguard, BlackRock and billionaire investor Warren Buffett’s Berkshire Hathaway conglomerate are Kroger’s largest shareholders.
“Both companies had a lot of expectations for the merger as a vehicle for growth. That’s not happening now,” said Neil Saunders, managing director at retail consultancy GlobalData. Share buybacks can help inject further “sentiment of optimism” among investors, effectively reassuring investors “‘We’re going to generate good returns for you.'” he said.
Kroger’s stock has risen about 3% since Wednesday, while Albertsons had recouped nearly all of its post-judgment losses by late Thursday.
Meanwhile, consumer and labor advocates hailed the blocked merger as a victory for shoppers and workers and vindication of the Biden administration’s antitrust efforts in the final weeks of its term. I am doing it.
Seth Harris, a professor of law and policy at Northeastern University, said the judges in the case “correctly viewed the merger as a major threat to the jobs and profits of the thousands of members who work at these chains and in the communities in which they live.” ” Former top labor adviser to President Biden.
“If two of the four largest food retailers merge, consumers will have fewer choices and fewer alternatives to low-quality, ultra-processed foods,” said Thomas Gremillion, director of food policy at the Consumer Federation of America. It will happen,” he said.
Citing President-elect Donald Trump’s selection of Andrew Ferguson to replace Lina Khan as head of the FTC, Gremillion said, “Unfortunately, the Trump administration has not been able to take this important step toward restoring competition in the food retail industry.” It seems unlikely that they will take any further steps.” This is a sign that “Big Food is going to get even bigger over the next four years,” he predicted.
During a campaign stop in September at a grocery store in Kittanning, Pennsylvania, Trump criticized the Biden-Harris administration over the cost of everything from eggs and cereal to ground beef. “Bacon is through the roof,” he said.
President Trump told the New York Stock Exchange on Thursday that more oil and gas drilling would help lower inflation, including food prices, but energy analysts expressed skepticism about the promise. . But in a Time magazine profile published Thursday, he said of groceries: You know, that’s very difficult. ”
