A ‘difficult business’: What the stock market says about the Albertsons-Kroger merger

The proposed merger between Boise’s Albertsons and Kroger is likely to fail. At least, that’s what stock market investors seem to think.

Two years ago, Cincinnati-based Kroger, the nation’s largest traditional grocery company, agreed to buy Albertsons, the second-largest, for $34.10 per share. But Albertsons’ stock price has fallen significantly below the price its shareholders would receive if the deal goes through. It was $18.44 per share as of Tuesday.

“This stock price is the market saying ‘No, it’s not going to happen,’” said Dave Petso, of Petso Financial Consultants in Boise, in a phone interview with the Idaho Statesman. “It’s also telling you that the company is in serious trouble.”

Even if Albertsons and Kroger win their lengthy court battle with the Federal Trade Commission, attorneys general from several states have lined up to prevent the deal from going through. The FTC sued in February to block the merger, saying it would lead to higher consumer prices, since the companies compete in hundreds of markets across the country, including the Boise area, where Kroger operates Fred Meyer stores.

U.S. District Judge Adrienne Nelson in Portland is expected to rule soon on whether to stop the acquisition from moving forward.

The companies say the deal would give them more leverage with suppliers, which would lower prices and help them compete more effectively with other retail giants like Walmart, Amazon and Costco. Kroger has promised that it “will not close any stores, distribution centers or manufacturing facilities or lay off any frontline associates as a result of the merger.”

But without the deal, Albertsons CEO Vivek Sankaran said, the company may cut jobs and close stores.

Petso worries the company would pull sponsorships for local events like the Boise Open or even go out of business. He said grocery retailers have slim margins and that Albertsons has “been very generous to this community.” Petso also questioned the FTC’s assertion that the merger will reduce competition and raise prices. He noted that Albertsons’ stores already command perhaps the highest prices of any supermarkets in the Treasure Valley.

“If they go any higher than they already charge, everybody will still go to WinCo,” Petso said. “You walk out of an Albertsons and everybody’s got a little plastic bag in their hand and a case of beer. Nobody does all their shopping there. That, to me, says everything.”

Albertsons was founded by Joe Albertsons in 1939 with a single store at the corner of 16th and State streets. The company has 39 stores in the state. Thirteen are in Boise.

The company’s stock price hit a three-year low of $17.94 per share on Sept. 9 after peaking at $36.16 in March 2022. Kroger’s agreement to pay $34.10 per share valued Albertsons at $24.6 billion. Albertsons has already paid out $4 billion of that in a special $6.85 dividend. Albertsons’ dividend is now 2.6%.

Brian Wiley, of Tree City Advisors in Boise, said grocery stock tends to be steady. He said some investors bought Albertsons’ stock assuming there would be a merger. Now, there’s not a lot of confidence it will go through.

“I think the market is adjusting to that price-wise,” Wiley said. “Albertsons has done a really good job of imaging themselves out as looking good from a consumer standpoint, but they’ve really struggled to do it from a profitability standpoint. Then they finally get a hold of it, the company goes up for sale and they can’t maintain it.”

Both Kroger and Albertsons are struggling to manage the optics.

Grocery prices have surged over the last few years, and it’s a challenging time to convince the American public that a supermarket merger would benefit customers.

Kroger’s top pricing executive testified during a court hearing on the FTC’s bid to block the deal that the company had hiked prices on milk and eggs more than needed to account for inflation, the Statesman reported. And in one filing, the FTC accused Albertsons executives of deleting text messages related to the merger, including one thread where an executive admitted the merger would likely increase prices.

“When Kroger first looked at this deal, it was probably close to worth what they offered to pay,” Wiley said. “I don’t think it’s even worth near it now. I think they’re paying too much for it.”

This month marks two years since the deal was announced. Petso says investors are tired of waiting for a resolution.

“It’s just not interesting to Wall Street. I think people get tired of watching a two-year-old story,” Petso said. “And the reality is that it’s an incredibly difficult business. The market is telling you, ‘I don’t really want to own it; I don’t see this as a growth opportunity.’”

Albertsons did not immediately respond to an email requesting comment, and calls to its media line were not connected.

Albertsons may have to cut jobs and close stores if Kroger takeover is aborted, CEO says

Albertsons executives deleted texts about Kroger merger to destroy evidence, FTC says

Kroger, which wants to take over Albertsons, raised milk and egg prices above inflation