Kroger’s (KR) proposed $24.6 billion acquisition of Albertsons (ACI) suffered a major setback on Tuesday when a federal judge issued a preliminary injunction to block the deal. The ruling comes as a major victory for the Federal Trade Commission (FTC). Following the news, KR stock closed 5.2% higher yesterday, while ACI stock declined by 2.3%.
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In February 2024, the FTC, along with eight states and the District of Columbia, filed a lawsuit to block the merger. They argued that the deal would hurt competition among local grocery companies, leading to higher prices for consumers and lower wages for workers.
Judge’s Ruling Stalls the Merger
It is worth noting that after a three-week trial, U.S. District Judge Adrienne Nelson in Oregon agreed with the FTC. She also rejected the proposed divestiture of 579 stores to C&S Wholesale Grocers, arguing that it would not adequately resolve the issues.
As a result of the ruling, the case will be sent to the FTC for further review. Also, both Kroger and Albertsons have the option to appeal the decision or seek a settlement with the FTC. However, investors should note that this temporary block reduces the chances of completing the biggest supermarket deal in U.S. history to a great extent.
Both Companies Claim Merger Could Boost Competition
Both Kroger and Albertsons expressed disappointment with the ruling. The companies had eyed this merger as an opportunity to better compete with larger retailers like Walmart (WMT), Costco (COST), and Amazon (AMZN). With over 5,000 stores post-merger, the companies said they would have a bigger presence and greater purchasing power, potentially leading to lower prices and benefiting customers.
However, Judge Nelson disagreed and concluded that the combined company would gain too much control in certain regions, reducing competition and possibly causing prices to rise.
Is KR a Good Stock to Buy Today?
On TipRanks, KR has a Moderate Buy consensus rating based on eight Buy and five Hold ratings assigned by analysts in the past three months. At $65.10, the average Kroger price target implies 7.2% upside potential. Shares of the company have gained about 36% year-to-date.
