Blocked grocery mega-merger tips rolling M&A cart

PJT Partners

11/12/2024 13:00

(The author is a Reuters Breakingviews columnist.  The opinions
expressed are his own.)
    By Jonathan Guilford
       NEW YORK, Dec 10 (Reuters Breakingviews) - Dealmakers
are getting excited after two years of middling M&A. For one
thing, they’re happily waving goodbye to a
consolidation-skeptical agenda that has contributed to the
sluggish growth in merger activity. A judge’s decision on
Tuesday to block grocer Kroger’s  KR.N  $25 billion acquisition
of rival Albertsons  ACI.N , however, suggests that chief
executives and their consiglieri are getting ahead of
themselves.
    U.S. Federal Trade Commission trustbusters sued to block the
supermarket combo in February, nearly two years after it was
unveiled. Although it’s a relatively straightforward case
involving two direct competitors, agency boss Lina Khan used it
as another opportunity to pursue novel antitrust theories. She
argued that other sorts of fresh food vendors aren’t genuine
rivals, and that uniting Kroger and Albertsons could harm union
workers.
    The general criticism of Khan and her Justice Department
counterpart, Jonathan Kanter, is that their aggressive approach
leads to losing lawsuits or complicates otherwise winnable ones.
Judges bound to decades of legal precedent are an obstacle;
indeed, by filing cases and losing them, competition cops risk
inscribing failures into case law.
    This argument hasn’t held up. The FTC’s sweeping
victory against handbag makers Tapestry  TPR.N  and Capri
 CPRI.N  in October saw the court even cite cases that Khan’s
litigators lost as offering succor and hewed to a controversial
2023 rewrite of the U.S. merger rulebook. The Kroger opinion
similarly affirms the new guidelines, pushes aside previous
decisions and only narrowly stops short of endorsing the idea
that merging employers harming the labor market is enough to
kill a deal.
    None of this will matter if the incoming administration
doesn’t sue to stop deals. Goldman Sachs  GS.N  boss David
Solomon told the Reuters Next conference on Tuesday he could
foresee M&A in 2025 possibly exceeding the 10-year average.
Through November, there has been $3.2 trillion of worldwide
activity, 16% more than at the same time in 2023 but 14% less
than in pre-pandemic 2019, per Dealogic. Valuations of boutique
advisory shops including PJT Partners  PJT.N  leapt after the
presidential election. The third- and fourth-largest advertising
agencies, Omnicom  OMC.N  and Interpublic  IPG.N , dismissed
regulatory concerns by pointing to a business-friendly future
under Donald Trump.
    It’s a reasonable assessment, up to a point. Republicans
built the decades-long consensus before Joe Biden took office.
At the same time, the FTC includes members of both parties, and
they voted unanimously to pursue lawsuits like the one against
Tapestry. Trump’s first term also was not a laissez-faire
free-for-all; if anything, there is some continuity in
philosophy. Although a slew of deals may be in the offing,
Kroger and other recent developments offer a useful reality
check.

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    CONTEXT NEWS
    A U.S. court on Dec. 10 blocked Kroger’s $25 billion
acquisition of groceries rival Albertsons, ruling in favor of
the U.S. Federal Trade Commission’s arguments against the merger
and issuing a preliminary injunction that allows the companies
to pursue their deal if separate administrative proceedings deem
it lawful. In a separate Dec. 10 decision, a Washington state
judge also blocked the transaction.
    U.S. District Judge Adrienne Nelson said that combining the
two chains and their roughly 5,000 stores would likely reduce
competition, in the process rejecting arguments by Kroger and
Albertsons that the retail market for fresh food should be more
widely defined beyond just traditional supermarkets for
antitrust purposes. The companies first unveiled the deal in
February 2022.
    Kroger shares closed up more than 5%, at $60.73, while
Albertsons shares fell more than 2% to $18.51.

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M&A advisers got a big Trump bump    https://reut.rs/3ZKbCwf
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 (Editing by Jeffrey Goldfarb and Pranav Kiran)
 ((For previous columns by the author, Reuters customers can
click on  GUILFORD/  
Jonathan.Guilford@thomsonreuters.com))