Kroger and Albertsons are moving ahead with a plan to divest between 250 and 300 stores in an effort to satisfy regulators that are reviewing the companies’ $24.6 billion planned merger, according to a Friday report from Reuters citing unnamed sources familiar with the matter.
The stores, which are located in regions across the U.S. where both Kroger and Albertsons operate, could generate more than $1 billion in sales, according to the report.
It’s unclear where exactly the review process for the megamerger stands at this point, though the report noted that the companies have begun discussing their divestiture plan with the Federal Trade Commission as well as potential buyers. Both grocers along with the FTC declined to comment to Reuters.
When announcing their merger plans in October, Kroger and Albertsons said they would likely have to divest between 100 and 375 stores to satisfy regulators. The merger agreement allows Kroger to walk away from the deal and pay a $600 million breakup fee if the number of store divestitures exceeds 650.
The Reuters report noted that Kroger and Albertsons will spin off the stores they’ve proposed to divest if they can’t find a buyer. Potential buyers include Ahold Delhaize, which owns six grocery brands that operate along the East Coast.
Proposing store divestitures early on in the review process has become a popular tactic in merger reviews, sources have told Grocery Dive. But the FTC will be closely scrutinizing any store sales to ensure the locations will still be competitive. FTC Chair Lina Kahn criticized the agency’s remedy in Albertsons’ acquisition of Safeway in 2015, which involved selling close to 150 stores to the small Northwest grocery chain Haggen. Haggen went bankrupt in a matter of months and sold most of the stores back to Albertsons.
“Regulators have started to say, ‘we’re not going to be satisfied with a divestiture remedy if it isn’t to someone that has the wherewithal to really replace competition,’” Jim Burns, an antitrust lawyer with Williams Mullen, a firm based in Richmond, Virginia, said in an earlier interview.