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Grocery chain Kroger will acquire smaller rival Albertsons in a $24.6 billion transaction announced Friday that would create a supermarket giant but could face tough regulatory scrutiny. online news
The transaction, which unites two companies with some 710,000 employees and 5,000 stores in the United States, aims to take advantage of economies of scale to compete more effectively with giants like Walmart and Amazon.
But shares of both companies fell Friday as analysts cautioned that the transaction could face a tough once-over from Biden administration regulators, who have adopted a skeptical approach to large mergers.
In this case, both Kroger and Albertsons are consumer-facing companies. The deal also comes as the US economy contends with grinding inflation.
In uniting, the two companies would have a combined customer base of about 85 million households, boosting its consumer data holdings and enabling some $1 billion in annual cost savings, executives said on a conference call with analysts.
These include “synergies” through improved sourcing, supply chain efficiencies and administrative savings, said Kroger Chief Financial Officer Gary Millerchip.
The companies pledged that the savings would enable them to “invest in lowering prices for customers,” they said in a press release.
But Morningstar analyst Zain Akbari predicted that the overlap between the companies in many markets would lead “regulators to scrutinize a transaction closely,” he said in a note earlier this week following reports of merger talks.
To address that issue, Albertsons plans to spin off between 100 and 375 stories as a standalone public company prior to the deal’s closing.
This would create a “new, agile competitor” to the new Kroger, with a strong balance sheet and “experienced” management, Kroger and Albertsons said in a news release.
That transaction is expected to lower the deal cost by up to $4 billion to Kroger, the companies said.
Near 1500 GMT, shares of Albertsons were down 7.1 percent at $26.59, while Kroger was down 3.2 percent at $45.06.
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Notes from APS Radio News
During the past twenty years the number of mergers and acquistions has increased.
In part, that was driven by inflated stock markets.
A number of the largest corporations have used the increases in stock prices and inexpensive money to increase their assets and holdings.
During the past few decades, interest rates have been at record low rates.
The combination of low rates and aggressive programs of monetary expansion, which was implemented by the Federal Reserve, has allowed corporations to borrow money at inexpensive terms.
Borrowed money and increases in stock prices have allowed corporations to purchase other companies.
Monetary expansion is the process whereby a central bank pruchases government and corporation bonds.
Since the early days of March 2020 to April of this year, the Federal Reserve has added nearly $5 trillion to its holdings.
Until after the beginning of the year, it had kept interest rates at low levels.
Even as inflation increases were becoming noticeable a year ago, Jerome Powell, the Chairperson of the Federal Reserve was dismissing concerns about higher rates of inflation.
The combination of aggressive policies of monetary expansion and lockdowns, which were imposed by way of the virus thingy, which itself has had a recovery rate of 99% for most age groups, has led to higher rates of inflation.
Other causes pertain to the war in Ukraine and instances of price gouging.