Most proposed mergers slide through the government’s antitrust review process.
Some like Kroger’s plan to pay $24.6 billion for Albertsons — first announced in October 2022 — take much longer to analyze. A few get rejected quickly, such as JetBlue’s $3.8 billion attempt to buy Spirit, which the airlines said they will appeal, although the grounds to do so appeared in doubt Friday. Six Flags said on Tuesday that federal regulators have asked for additional information about its proposed self-described “merger of equals” with competitor Cedar Fair valued at $8 billion.
Those are the cases that make headlines. They’re few.
Only 47, or 1.6% of the more than 3,000 cases reviewed in 2022, were subject to a second request for information issued by regulators, according to the annual report released last month by the Federal Trade Commission and Department of Justice.
“The FTC and DOJ actions are making headlines because businesses think they ought to have the right to merge with whomever they want,” said Darren Bush, professor of law at the University of Houston Law Center. “The purpose of merging is more corporate hubris than concern for customers.”
The agencies reviewed 3,152 cases in 2022, which was the second-highest number of reported transactions in the past 10 years. Not every merger or acquisition goes through a regulatory review. This week the FTC raised the thresholds for when a merger comes under FTC or DOJ antitrust review to $119.5 million from $111.4 million based on inflation and the growing economy.
The FTC and DOJ together filed 50 merger enforcement actions in 2022, representing the highest level of enforcement activity in more than two decades.
Among them were 24 merger enforcement challenges:
—Eleven were issued final consent orders after a public comment period.
—Seven proposed transactions were abandoned or restructured as a result of antitrust concerns raised during the investigation.
—Six cases generated administrative or federal court litigation from regulators.
The Biden Administration has made it a priority to enforce antitrust laws and its lead antitrust regulators — Lina Khan at the Federal Trade Commission and Jonathan Kanter at the Department of Justice — are taking a sharper look at the power of monopolies and the government’s responsibility to promote competition in the U.S. economy.
For the first time in decades, the commission sought to outright block a defense industry transaction in 2022 when Lockheed Martin tried to buy Aerojet, saying it would prevent other defense contractors from accessing Aerojet’s critical components that go into missiles. The companies abandoned the transaction.
A high-profile case involved the government’s blocking of Penguin Random House’s proposed purchase of major rival Simon &Schuster. The merger would have eliminated competition that had led to higher advances, better services, and more favorable contract terms for authors trying to sell their work.
Two mergers were blocked to protect competition in the supply chain between container-handling equipment makers and between two of the world’s four suppliers of insulated and refrigerated container boxes.
Another merger was abandoned in 2022 after the Rhode Island Attorney General filed a lawsuit to stop a merger of the two largest health care systems in the state.
The 2022 actions were in agriculture, health care, financial services, publishing, manufacturing, transportation and national security.
None were in retailing, but blocking stores from merging is not unprecedented:
—The FTC blocked the merger of two of the nation’s largest drugstore chains, Rite Aid and Revco in 1996.
—In 2000, Kroger abandoned plans to buy 74 Winn-Dixie supermarkets after it was opposed by the FTC which said it would substantially lessen competition in several markets in North Texas mostly near and in Fort Worth.
—The FTC sued Irving-based 7-Eleven last month alleging the convenience store chain violated a consent order stemming from its 2018 purchase of 1,100 gas stations from Sunoco. 7-Eleven faces a maximum penalty of more than $77 million for acquiring a gasoline station in St. Petersburg, Fla., “mere months” after 7-Eleven agreed to the order to exclude stores in 76 areas inside 20 cities mostly in Florida and Texas where competition would be harmed if stores that sell gasoline had the same owner.
The FTC said the acquisition “plainly violated the consent order, was anti-competitive, and likely allowed 7-Eleven to charge higher fuel prices at locations near the St. Petersburg location.”
The FTC is still reviewing the impact of Kroger’s acquisition of Albertsons on consumers, employees, suppliers and cities across the U.S. including Dallas-Fort Worth.
Kroger and Albertsons said their merging “will bring lower prices to more customers, strengthen and create good-paying union jobs, and bring more fresh, affordable food to more communities.”
Kroger has proposed to sell 413 stores including 26 in Texas to satisfy antitrust concerns. It hasn’t identified those stores beyond saying they are from the Albertsons side of the tie-up.
Washington state’s attorney general earlier this month asked a federal judge to block the supermarket acquisition saying it would harm consumers and raise prices in the state. The two retailers account for more than half the grocery sales in Washington.
Kroger and Albertsons aren’t giving up and have extended their timeline for completing the transaction from the beginning of this year to August.
The retailers say that blocking the merger will “strengthen larger, non-union retailers like Walmart, Costco and Amazon by allowing them to maintain and increase their overwhelming and growing dominance of the grocery industry.”
That argument is coming at a time when smaller regional grocers are competing, growing, and receiving accolades for being innovators in the supermarket industry.
Bush has co-authored a study with empirical evidence suggesting that horizontal mergers, or mergers between like businesses, are not efficient, he said.
“I think there is an unhealthy amount of optimism about the benefits the mergers might bring in terms of cost savings,” he said. “It is a myth, one that parties are taking to the bank as they blow merger sunshine into the eyes of judges blinded by the false notion of efficiencies.”
In Dallas-Fort Worth, Kroger and Albertsons plus two additional grocery chains that Albertsons owns here, Tom Thumb and Market Street, would result in a 28% market share, based on early 2023 data from Chain Store Guide. Walmart’s combined 37% share in D-FW is from its Supercenters, Neighborhood Markets and Sam’s Club.
“So the argument always seems to be,” Bush said. “I must get bigger to compete with the bigger guns.”
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