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While the prospects of the acquisition are promising, stakeholders need not rejoice yet as anti-competitive scrutiny may ensue to stall the deal.
Cincinnati-based American retail giant, Kroger Co (NYSE: KR) has inked an agreement to acquire one of its major rivals, Albertsons Companies Inc (NYSE: ACI) in a deal that will be one of the largest in the financial landscape for this year. As reported by CNBC, Kroger will be paying approximately $34.10 a share for Albertsons in a deal valued at $24.6 billion.
As the second-largest grocery chain by market share after Walmart Inc (NYSE: WMT), the acquisition will significantly propel the company to bridge the competition gap by a wide margin. While the deal is subject to a long review process from regulators, the prospects it is bound to offer both companies have been resounding to investors and customers as a whole.
By the numbers, Kroger and Albertsons do not have such a wide gap in their key assets and operational milestones.
While Kroger has a total of 2,800 stores in 35 states, Albertsons has as many as 2,200 in 34 states as well as Washington DC. By employee count, Kroger boasts of 420,000 staffers as against the 290,000 from Albertsons and according to data from FactSet, Kroger has a market capitalization of $33.3 billion as against the $15.2 billion for Albertsons.
The fusion of the business of Kroger and Albertsons is bound to fuel stiffer competition for Walmart on all metrics. Overall, the combined entity will have over 700,000 employees helping to drive its agenda and will be operating from more than 5000 locations across the United States.
“Albertsons Cos. brings a complementary footprint and operates in several parts of the country with very few or no Kroger stores,” Kroger CEO Rodney McMullen said in a news release announcing the deal.
Likely Impediments to the Kroger and Albertsons Deal
While the prospects of the acquisition are promising, stakeholders need not rejoice yet as anti-competitive scrutiny may ensue to stall the deal. Approvals will only be granted if regulators find out that the combined entity will not be too powerful across many segments in the grocery sector.
According to a research note published on Thursday by Morgan Stanley’s retail analyst, Simeon Gutman, the business of Kroger and Albertsons overlaps in many key states. This includes parts of Southern California, Colorado, Seattle, and parts of the Midwest and Texas. While the overlap in these regions is glaring, there is no significant overlap in other regions such as the Northeast and Southeast.
Gutman also advocates caution as there remains a significant risk in massive investments in the grocery sector at this time.
Notably, the growing inflation in the economy has put a curb on how consumers spend on food whose prices have grown by more than 11% over the past year according to the latest inflation data published yesterday. While related deals may not yield good fruits in the short term, it is regarded as strategic one that may eventually pay off in the long run.