Curtain up for the legal battle between Kroger and Albertsons and the FTC

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Almost two years after announcing their groundbreaking merger plans, Kroger and Albertsons are now facing a dispute in an Oregon court with US regulators seeking to prevent the supermarket chains from merging.

The road to court has been fraught with legal delays and opposition from unions, lawmakers and the government as Kroger and Albertsons have been trying to win public favor for well over a year.

The judge presiding over the case in the U.S. District Court for the District of Oregon in Portland, which begins Monday, will decide whether to grant the Federal Trade Commission's request to block the high-profile transaction on the grounds that it is anti-competitive and harmful to workers.

If the judge issues a temporary injunction to stop the merger, it would be a major – and potentially insurmountable – setback for Kroger and Albertsons. Both companies have argued publicly for months that their deal would allow them to better serve their customers and compete more effectively with rivals like Walmart.

Kroger and Albertsons have been working on several fronts to make their merger a success, including negotiating a deal to sell nearly 600 stores and other assets to C&S Wholesale Grocers to address concerns that the merger would limit consumer choice.

Kroger has also pledged to invest $1 billion in lowering prices if the merger goes through, arguing on the side of consumers as shoppers continue to worry that grocery prices remain too high despite a significant drop in inflation.

As Kroger tries to overcome opposition to its proposed merger with Albertsons, the company has also made public the potential financial impact of the proposed merger on its business. If the two companies had already received approval to merge by this time, they would have generated combined sales of about $208 billion in the fiscal year that ended Feb. 3, Kroger said in an Aug. 15 securities filing. The stores and other assets to be transferred to C&S would have generated sales of about $21 billion, Kroger said.

Kroger reported sales of about $150 billion for the last 12 months, while Albertsons generated about $79 billion in the same period.

The Oregon case has not only pitted the grocery chains against the FTC, but has also led to conflicting opinions from several states' attorneys general about the viability of the merger proposal. Top legal officials from eight states and Washington, DC, agree with the FTC's claim that the merger would severely harm the grocery industry, hurt consumers and limit workers' opportunities.

But last week, four state attorneys general – including the chief justice of Ohio, where Kroger is headquartered – came out in favor of the merger. In an amicus curiae brief to the Oregon court, they claimed the regulator's reasoning reflected a “simplified view of the grocery retail market, and blocking the acquisition would weaken, rather than protect, competition among firms competing for consumers' grocery purchases.”

Kroger has also tried to build momentum ahead of the Oregon hearing by sowing doubts about the FTC's practice of using administrative law judges to decide merger cases. An administrative law judge would oversee a potential appeal if the Oregon judge grants the FTC's request for a preliminary injunction against the merger.

In a case filed in early August in the U.S. District Court for the Southern District of Ohio, Kroger said the FTC's procedures violated the Constitution because the judicial branch, not the executive branch, is tasked with deciding the FTC's private rights to enter into a contract with another private party. Kroger also claimed that the agency's decision to use an internal arbitration panel to pick apart the merger plan, in addition to challenging the transaction in court, was unconstitutional.