The owner of Ralphs Kroger wants to merge with rival Albertsons

Kroger Co., which owns the Ralphs supermarket chain in Southern California, is in tie-up talks with rival Albertsons Cos. in a deal that would create a U.S. grocery giant, people familiar with the matter said.

A deal could be reached as soon as this week, the people said, asking not to be identified discussing confidential information. No final decisions have been made and the talks could be delayed or delayed, according to the people.

The exact structure and price of the deal were not immediately known. Any potential transaction, if agreed, could face antitrust scrutiny.

Representatives for Albertsons and Kroger could not immediately be reached for comment.

Boise, Idaho-based Albertsons is mulling options to boost growth after seeing sales profits during the COVID-19 pandemic shrink while labor and logistics costs rise.

Its shares rose as much as 11% on Thursday. The stock was up 6.4% at 10:44 am. in New York, giving the company a market value of about $14.5 billion. Kroger fell 1.5% to $45.33, giving the company a market value of about $33 billion.

Albertsons announced in February a strategic review of its businesses, which include the Acme, Tom Thumb and Shaw’s chains as well as its namesake stores, that raised the prospect of potential sales to help create shareholder value.

The grocer is still nearly 30 percent owned by Cerberus Capital Management, the New York private equity firm that first invested in the business in 2006. Albertsons emerged from Cerberus’ portfolio when it made an initial public offering in 2020.

Cincinnati-based Kroger, meanwhile, has grown less sharply than Albertsons during the pandemic but has retained more of its profits.

A potential tie-up would give the combined entity increased buying power, an expanded shopper loyalty program and more weight in technology investments as online grocery sales grow. The resulting giant will be comparable in size in groceries to Walmart Inc., the U.S. market leader.

But any deal would face tough scrutiny from U.S. antitrust authorities, said Jennifer Bartashus, an analyst at Bloomberg Intelligence. The Federal Trade Commission is already reviewing mergers, and a Kroger-Albertsons deal would unite two major players that compete directly across much of the country.

“This is the type of transaction that looks really good on paper, but the actual practicality of getting regulatory approval from the FTC could be difficult,” Bartashus said. “If you think about the store bases of the two respective entities, there is a lot of overlap in very competitive markets.

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