The Federal Trade Commission (FTC) is suing to block the Kroger Company's (KR) $24.6 billion acquisition of the supermarket chain Albertsons Companies (ACI). FTC regulators claim the deal would cause grocery store price hikes, an issue many consumers already face, while both companies claim blocking the deal will end up hurting consumers and workers.
Former FTC Chairman William Kovacic and Former FTC Commissioner Mozelle Thompson join Yahoo Finance Live to discuss the broader implications the FTC's decision could have on US consumers.
On how the FTC is building its case, Kovacic says: "The traditional criteria they're using I think to create a solid case on the question of whether we're going to see increased concentration in the market. The companies recognize this, and again, the real issue is have they come up with a solution that's going to be sufficient? The FTC also to an extent it has not done before, has highlighted the effect of the transaction on workers. A key argument that the FTC is making is the deal is not just bad for consumers, it's bad for the employees of the two companies."
Thompson follows up with how the companies have reacted and what could happen as a result: "They've made major concessions here. The question is whether those concessions will be viewed as adequate. In addition, the FTC is embarking on a test of its new merger guidelines, and that includes, as Bill mentioned, the impact on labor markets which is a little bit broader view of competition than has traditionally been there. I don't know how much the courts will look at that and adopt it or not. That's a new area."
For more expert insight and the latest market action, click here to watch this full episode of Yahoo Finance Live.
BRAD SMITH: Roadblocks ahead for a mega merger. The Federal Trade Commission is suing to block Kroger's $24.6 billion acquisition of Albertsons. The FTC believes that the deal would cause grocery price hikes for many Americans. Kroger responding that the blocking of the merger will actually harm America's consumers and workers.
For more on the lawsuit, we're joined by Bill Kovacic who served as the FTC chairman from 2008 until 2009, alongside Mozelle Thompson, former FTC commissioner who served from 1997 to 2003. Great to have both of you here on the morning to discuss this.
WILLIAM KOVACIC: Thank you.
BRAD SMITH: First, Bill, I want to go to you on this matter. As you think about what the FTC is looking for here and the arguments that are going to have to be put forward by both Kroger and Albertsons, what are you anticipating?
WILLIAM KOVACIC: The FTC has gathered a considerable amount of evidence that's presented in their complaint, that in a variety of geographic areas, this transaction is going to create substantial concentration in a market consisting of traditional supermarkets. I think to some extent, Kroger and Albertsons will contest that and say that there are retail possibilities that are being left aside.
But I think they realize that, as a matter of traditional analysis, that they have a problem there. They've tried to solve it by offering a package of divestitures that includes over 400 retail outlets. A core issue in the case is going to be the adequacy of that solution.
The FTC says it's not adequate, it's not going to provide robust competition. I think the key substantive issue in the case will be, how good is the divestiture package? And is C&S Wholesale, the buyer, going to be an effective purchaser and operator of those assets?
SEANA SMITH: Mozelle, what do you think of the FTC's argument and whether or not, from what we know at this point, if it has a strong case?
MOZELLE THOMPSON: Well, one of the--
WILLIAM KOVACIC: The traditional criteria they're using, I think, create a solid case on the question of whether we're going to see increased concentration in the market. The companies recognize this. And again, the real issue is, have they come up with a solution that's going to be sufficient?
The FTC also, to an extent that it has not done before, has highlighted the effect of the transaction on workers. A key argument that the FTC is making is that the deal is not just bad for consumers. It's bad for the employees of the two companies.
And, again, to an unprecedented degree, the FTC is saying that that is a major area of harm from the transaction. And I suspect that, as well, is going to be a focus on the discussion of the adequacy of the divestiture. So, more than we've seen before, the FTC is emphasizing--
MOZELLE THOMPSON: Thank you, Bill.
WILLIAM KOVACIC: --the adverse effect on workers.
SEANA SMITH: Mozelle, do you agree?
MOZELLE THOMPSON: Well, yes, but I also would say that have to look at what the market definition is here. One of the things that Kroger and Albertsons are going to argue is that the people who provide groceries, that market is much bigger than the FTC may actually claim it is. They say that there are some benefits from them being at a scale where they can compete with entrants like Costco and entrants like Walmart, who are major grocery chains now.
And there are also companies like CVS and Walgreens who are also selling groceries, and Target. So, they would argue that the market is much broader. But I do think, as Bill points out, they've made major concessions here. The question is whether those concessions will be viewed as adequate.
SEANA SMITH: Mozelle, what do you--
MOZELLE THOMPSON: In addition-- in addition, the FTC is embarking on a test of its new merger guidelines, and that includes, as Bill mentioned, the impact on labor markets, which is a broader view of competition that has traditionally been there. I don't know how much the courts will look at that and adopt it or not. That's a new area.
SEANA SMITH: Well, Mozelle, to expand on that even just a little bit more, I guess from what we in this case, and at least the FTC's argument up until this point, what does that tell us even more just about the approach or the landscape here for mergers under the Biden administration?
MOZELLE THOMPSON: Well, one of the things that's happened is that they've sent a clear message that mergers will be looked at more carefully and with a broader approach, looking at an array of different possible impacts. And I think that the test of those impacts are going to be weighed by courts. So far, they haven't all-- they haven't had great success, but they're still whittling away at it.
And I think this is what they're doing, and also the Department of Justice. You know, what it also says to investors is that deals may still get through, but it will be more expensive and take more time. And to the extent that the Biden administration wants to send a signal that may give a chilling effect to mergers, that's something that has definitely happened, and the market is responding to that.