By Crystal Tse and Brendan Case | Bloomberg
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.
The grocery chain is also divesting the Debi Lilly Design, Primo Taglio, Open Nature, ReadyMeals and Waterfront Bistro private label brands. In addition, C&S will get eight distribution centers and two offices.
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.
The FTC still could sue to block the Albertsons deal. Labor unions and officials from a range of states have 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 court if 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 237 more 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.
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.
See more: A deeper look at the grocery business
“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.