The climate for corporate mergers isn’t looking too good right now.
The supermarket retail chains Kroger BB #:100073 and Albertsons BB #:193326 have announced that they are delaying their highly publicized and extremely controversial merger, which was initially planned for—basically around now.
The companies have also halted the divestiture of stores to C&S Wholesale Grocers BB #:137315, which was part of a plan to reduce the reality or appearance of creating an anticompetitive atmosphere in retail grocery.
The new target date is the first half of fiscal 2024, which in this case ends on August 12.
Some might say that the delay is due to a new lawsuit by the Washington State district attorney to block the merger. Possibly a bigger factor is loud signals from the Federal Trade Commission (FTC) that it is not comfortable with the plan.
Another signal that mergers—which for decades seemed to be a matter of little more than rubber-stamp approval—are facing a tougher climate: a January 16 ruling by a federal judge that blocked the acquisition of low-cost airline Spirit Airlines by a higher-cost carrier—JetBlue Airways—for $3.8 billion.
The judge agreed with the Department of Justice that the merger would reduce competition in the air transport industry. Arguments at trial indicated that airline fares, including those of JetBlue, dropped when Spirit announced a new route.
Another ostensibly anticompetitive element: JetBlue would introduce wider, roomier seats to Spirit flights (whose crowded conditions, a constant source of complaint, help to keep fares down), further reducing the availability of seats.
As for the Kroger-Albertsons merger, although some (like the two companies) insist that it will still go forward, business deals of this sort have lifespans, and they are not long ones: the greater the delay, the more likely that the merger will fall through.
Many produce industry sources indicate that the merger of the two supermarket chains would hurt their business by reducing the number of purchasers of their products.
The larger picture: the Biden administration, under its FTC chair, Lina Khan, has been much more aggressive against mergers than the federal government has been in decades.
The future will no doubt depend on the presidential election. If President Biden is reelected, it seems likely that the federal authorities will continue to greet corporate mergers with skepticism.
If a Republican is elected, federal policy toward mergers and acquisitions will arguably revert to the more welcoming attitude it had before 2021.
