Concerns mount about proposed Kroger-Albertsons merger during court battle
September 11, 2024
The Kroger-Albertsons merger hearing has emerged as a pivotal moment in the ongoing debate over private equity’s expanding role in the retail sector. The $24.6 billion deal[1], largely benefiting Albertson’s private equity owner Cerberus Capital Management, is seen by many as a maneuver to maximize investor returns rather than to provide tangible benefits to consumers or workers. As the hearing unfolds, concerns are mounting that the merger will lead to higher prices for shoppers and further erode labor conditions, with private equity firms poised to pocket the gains at the expense of both consumers and employees.
Consumer and worker advocacy groups have voiced strong opposition, including the Stop the Merger Coalition led by several United Food and Commercial Workers Union (UFCW) locals.[2] They argue that the merger represents an anti-competitive, anti-worker, and anti-community strategy, likely to burden consumers grappling with rising living costs. With food prices skyrocketing by 11.2% from September 2021 to September 2022[3], critics warn that the merger could further exacerbate inflationary pressures.
Among those poised to benefit most from the merger is Cerberus Capital Management, which stands to gain over $5 billion if the deal proceeds. Cerberus, which holds a 30% stake in Albertsons and wields significant influence over its board, has a controversial track record of aggressive investment tactics.
In a move that was largely criticized, Albertsons declared a $4 billion dividend payout to its investors shortly after the merger announcement in 2022[4], with $1 billion directed to Cerberus[5]. This tactic, known as dividend recapitalization, involves a private equity firm borrowing against a company it controls to pay itself cash dividends. The dividend drained much of Albertsons’ liquidity and saddled the company with an additional $1.5 billion in debt.[6]Despite ongoing antitrust scrutiny and multiple lawsuits from state Attorneys General[7], the payout proceeded, leaving regulators to determine whether the merger violates antitrust and consumer protection laws.
Cerberus Capital Management, the private equity firm that has controlled Albertsons since 2006, has used tactics that hurt consumers to increase profits. Albertsons’ cash has nearly doubled to $3.4 billion since February 2021, even as consumers nationally have faced an 18% increase in food prices over the same period.[8] Cerberus-owned Albertson’s has used inflation as an excuse to raise prices and drastically increase profits while taking a massive payout with this dividend instead of lowering prices for its customers.
[1]https://www.cbsnews.com/news/kroger-albertsons-merger-trial-starts-heres-what-to-know/
[2]https://www.ufcw400.org/2024/08/26/ufcw-grocery-store-workers-strong-opposition-to-proposed-kroger-albertsons-merger-resonates-on-courthouse-steps-ahead-of-ftc-hearing/
[3]https://www.theguardian.com/environment/2022/oct/27/kroger-albertsons-merger-groceries-prices-food-deserts
[4]https://boisedev.com/news/2022/10/26/massive-improper-giveaway-attorneys-general-ask-albertsons-to-halt-dividend-payment/
[5] Based on 151.8 million Albertsons shares owned, $6.85 per share dividend. https://www.sec.gov/Archives/edgar/data/1646972/000114036122023648/ny20003207x1_def14a.htm; https://www.yahoo.com/now/albertsons-companies-announces-special-dividend-111800746.html
[6]https://www.atg.wa.gov/news/news-releases/ag-ferguson-files-lawsuit-block-albertsons-paying-4-billion-shareholders-merger; https://www.moodys.com/research/Moodys-places-Albertsons-ratings-on-review-for-upgrade-on-proposed–PR_470252
[7]https://www.atg.wa.gov/news/news-releases/ag-ferguson-files-lawsuit-block-albertsons-paying-4-billion-shareholders-merger; https://oag.ca.gov/system/files/attachments/press-docs/Letter%20to%20Albertsons%20Kroger%2010-26-22%20FINAL.pdf
[8]https://www.washingtonpost.com/business/2024/07/11/pepsi-conagra-food-prices-inflation/; Based on $1.717B in cash as of Feb 27, 2021, $3.392B in cash as of Sept 10, 2022, Albertsons form 10Q, Jul 29, 2021 and Oct 19, 2022, CPI for food at home, March 2021-November 2022, https://www.bls.gov/bls/news-release/cpi.htm#2022.
