Kroger Rises on Bid to Close Albertsons Deal With C&S Store Sale

Kroger Co. rose the most in six months after agreeing to sell 413 stores to C&S Wholesale Grocers in a divestiture designed to help win antitrust approval for its $24.6 billion merger with Albertsons Cos.

C&S will pay $1.9 billion in cash for the stores, the companies said in a statement Friday, confirming a Bloomberg News report Tuesday. Closely held C&S is a major grocery wholesaler that also operates Grand Union and Piggly Wiggly stores.

Kroger is betting that the store sale will help it persuade the US Federal Trade Commission to allow the Albertsons transaction, the centerpiece of the retailer’s push to keep up with Walmart Inc. and Amazon.com Inc. The FTC, which has recently challenged high-profile deals in video games, pharmaceuticals and mortgage software under Chairman Lina Khan, is scrutinizing the merger’s impact on grocery competition.

The agreement with C&S brings in “a well-qualified buyer who will be able to operate as a fierce competitor” Chief Executive Officer Rodney McMullen said on a call with analysts and investors. “We think we’ve addressed all the things and questions the FTC would have.”

Kroger’s shares rose as much as 6% in New York trading, the most intraday since March 2, buoyed by a signal that the company was tidying up its operations ahead of the proposed merger. In addition to the store divestitures, the supermarket chain announced a $1.2 billion settlement over claims it failed to properly monitor opioid prescriptions filled by the company’s in-store pharmacies.

See Also: CVS, Walmart, Walgreens Reach $13 Billion Opioid Settlement

The Cincinnati-based company also released financial results for its fiscal second quarter, reporting earnings of 96 cents a share. Wall Street had projected 90 cents, based on the average of analyst estimates compiled by Bloomberg. With shoppers under rising financial pressure, however, Kroger warned that same-store sales excluding fuel are likely to fall slightly in the second half of the year.

FTC Review

The FTC still could sue to block the Albertsons deal. Labor unionsand officials from a rangeof stateshave urged the regulator to oppose the merger, saying it would hurt wages and competition. Some senators and members of Congress have also criticized the transaction.

Still, Kroger said the acquisition remains on track to close in early 2024, and McMullen has vowed to fight in courtif necessary. The divestiture plan ensures that no stores will be closed in connection with the Albertsons merger, he said. Frontline workers will remain employed and existing collective-bargaining agreements will continue.

Under the terms of the sale, Kroger may require C&S to buy a further 237 stores in connection with efforts to win regulatory approval of the Albertsons deal, which would bring the total to 650. That’s the number Kroger had earlier defined as the ceiling for store divestitures.

The stores C&S will buy are a mix of Kroger and Albertsons locations in 17 states, concentrated in the Pacific Coast states and Colorado, with significant numbers as well in Arizona, Illinois, Louisiana and Texas. C&S will also take East Coast stores in Maryland, Virginia and Washington, DC.

The sale includes eight distribution centers and the QFC, Mariano’s and Carrs banners, plus exclusive licensing rights to the Albertsons brand name in Arizona, California, Colorado and Wyoming.

Store Footprint

On a combined basis, Kroger and Albertsons currently have a footprint of about 5,000 stores. Walmart has roughly 5,200 retail locations in the US, including about 600 Sam’s Club warehouse stores. Amazon, which is already a force in categories such as diapers and some packaged goods, recently began the biggest overhaul of its grocery business since it acquired Whole Foods Market six years ago.

For C&S, the deal will further an expansion into retail grocery stores. The Keene, New Hampshire-based company bought 12 stores from Tops Markets in 2021 when the latter grocer merged with the Price Chopper/Market 32 chain. That divestiture was approved by the FTC.

“C&S recently expanded its retail operations with the acquisition of 11 Piggly Wiggly Midwest retail stores, and hired a former retail grocery executive with significant retail experience to lead retail efforts,” the regulator said at the time.

In its sprawling wholesale business, C&S supplies more than 7,500 independent supermarkets, chain stores, military bases and institutions with over 100,000 different products.

Bloomberg News previously reported that SoftBank Group Corp. would be backing C&S in its acquisition of the stores.

(An earlier version of this story was corrected to reflect the number of states covered by the store sales.)

--With assistance from Liana Baker and Michelle F. Davis.

To contact the reporters on this story:
Crystal Tse in New York at ctse44@bloomberg.net;
Brendan Case in Dallas at bcase4@bloomberg.net

To contact the editors responsible for this story:
Liana Baker at lbaker75@bloomberg.net

Matthew Monks, John J. Edwards III

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