An Albuquerque woman named Jaszire Urioste was thrown in the slammer last week after fessing up to shoplifting nearly $1,000 worth of merchandise from her local Albertsons. Urioste pilfered booze, cereal, makeup, and an assortment of other goods for a party she was planning that evening. Although Urioste voluntarily admitted her wrongdoing to a deputy county sheriff she met in the Albertsons parking lot, she was still charged with felony shoplifting and giving a phony name to the deputy.
Lesson learned: If you are going to confess to a crime, make certain to use your real name.
Theft is a big deal for Albertsons, which is why the supermarket chain five years ago began using analytics software to facilitate the prosecution of repeat shoplifters. Checkpoint, a company that manufactures anti-theft systems, estimates that U.S. retailers lose $15-$20 billion a year due to “shrinkage,” the industry euphemism for customer theft. That’s why Albertsons is touchy about customers looting its stores for party supplies. Pervasive shoplifting erodes the company’s profits.
If America was a fair and just society, it would stand to reason that if someone deserves incarceration for stealing $1,000 worth of goods from a supermarket, then a band of gangs seeking to help themselves to $4 billion worth of funds from Albertsons’ corporate tills might be deserving of some serious hard time. But in America, if those gangs graduated from the best business schools and incorporated as private equity firms, buying and looting companies is perfectly legal, possibly even a supermarket on whose services millions of Americans depend.
While the media is focused on Elon Musk’s takeover of Twitter and providing blow by blow coverage of such weighty matters as his pricing on the blue verification checkmarks celebrities and journalists hold dear, a story of much greater significance to working- and middle-class Americans is unfolding with scant attention. It is Kroger’s proposed $25 billion takeover of Albertsons, which would meld the nation’s two largest supermarket chains.
Both companies operate under dozens of other names. Kroger’s brands include Ralphs, King Soopers, and Dillon’s, while Albertsons owns Safeway, Vons, Jewel-Osco, Shaw’s, Acme, Kings Food Market, and Balducci’s. Even if you don’t shop at any of these stores, you will be impacted.
That’s because the merger will create a company with near monopolistic pricing powers, which as certain as death and taxes means higher food prices. The deal would be a double whammy for consumers because food prices are already skyrocketing, up 13 percent in September alone. Indeed, the party supplies Urioste allegedly stole from Albertsons would have cost significantly less a year ago. A bag of potato chips at the grocery store cost an average of $5.05 in 2021, now sells for $6.05. A two-liter bottle of soda that cost $1.78 a year ago today costs $2.17.
“There is no reason to allow two of the biggest supermarket chains in the country to merge — especially with food prices already soaring,” said Sarah Miller, Executive Director of the American Economic Liberties Project, a nonprofit seeking to combat predatory pricing. “With 60 percent of grocery sales concentrated among just five national chains, a Kroger-Albertsons deal would squeeze consumers already struggling to afford food, crush workers fighting for fair wages, and destroy independent, community stores. This merger is a cut and dry case of monopoly power, and enforcers should block it.”
Albertson’s is controlled by Cerberus Capital Management, a rapacious private equity firm, and a gang of five investment and real estate funds. Cerberus owns close to 30 percent of Albertsons and holds two seats on the company’s board of directors. The other gang members hold an additional three board seats. It’s a safe bet that Cerberus is calling the shots.
Not surprisingly given its Cerberus tutelage, Albertsons’ 27 percent gross margins exceed all its rivals, including Jeff Bezos’s Whole Foods. The company achieved this feat by steadily raising prices, as much as 75 percent at some stores in the past three years. This explains why Cerberus’ rate of return over the life of its initial Albertsons investment in 2006 is about 200 percent, according to Bloomberg. By comparison, the benchmark annual rate of return for private equity assets held for 15 years was 13.3%.
But Cerberus, whose billionaire founder and co-CEO Steve Feinberg served on the economic advisory council for Donald Trump’s 2016 presidential campaign, isn’t satisfied with its outsized return. The firm wants to extract an additional pound of financial flesh from Albertsons before turning it over to Kroger, paying itself and the rest of the investment gang a $4 billion “special dividend,” despite the supermarket chain owing $4.9 billion to worker pension funds and another $7.5 billion to creditors. Credit rating agencies rank Albertsons’ debt as junk, meaning the company has a substantial risk of stiffing its lenders.
“They’re essentially looting this company,” Jonathan Williams, an official with United Food and Commercial Workers Local 400, which represents Albertsons workers, told the Washington Post. “Instead of paying themselves billions of dollars, the owners should invest in the essential workers who risked their lives to keep the stores open during the pandemic.”
Michael Hiltzik, a business columnist for the Los Angeles Times and one of the few remaining reasons to subscribe to the ailing publication, reported that Albertsons most recent filings revealed the company has only $3.4 billion in cash on hand, meaning Cerberus wants to saddle the supermarket chain with more debt to extract its dividend. Given Albertsons’ poor credit rating and rising interest rates, that debt will be costly.
Albertsons’ lawyer Ted Hassi of the white-shoe firm Debevoise & Plimpton insisted in a letter to state attorneys general seeking to block the $4 billion payment that the special dividend “is part of Albertsons’ long-term strategy for growth,” which was “determined well before Albertsons’ discussions with Kroger began.” As Hiltzik noted, the Kroger/Albertsons merger announcement explicitly stated that $4-billion dividend is “part of the transaction.”
Hassi was once one of the good guys, according to his bio. He previously served as FTC Chief Trial Counsel, leading the agency’s work “on matters that were or were likely to be tried, including high-profile challenges to several mergers and cases involving other anticompetitive practices.”
Here’s what is really, really, sick. Extracting $4 billion from Albertsons and financial crippling the company could help satisfy antitrust concerns because regulators sometimes award “failing firm defense” exemptions to anticompetitive mergers if the acquired firm is in severe financial distress.
As reported by Moe Tkacik in Slate, a lawsuit filed by California, Illinois, and Washington, D.C. attorneys general to stop the $4 billion transfer speculated that financially crippling Albertsons might be a calculated attempt to get regulatory approval.
From the lawsuit, per Tkacik’s reporting:
Discovery may reveal that the “Special Dividend” reflects a calculated effort to leave Albertsons just battered enough for Defendants to argue later (to regulators or a court) that it is a “flailing” or “failing” firm that Kroger should be allowed to acquire lest it go out of business anyway, but still worth its hard assets and Kroger’s gain from neutralizing a competitor.
It would seem a no-brainer for the Federal Trade Commission, the watchdog agency responsible for antitrust issues, to nix Kroger’s takeover of Albertsons. But as I’ve previously written, the agency has been weakened by Biden appointee Lina Khan, a 33-year-old Ivy educated attorney whose inexperience and arrogance has prompted longtime agency staffers to quit. Even if Khan moves to block the merger, it’s far from assured the FTC still has the legal firepower to go up against the likes of Debevoise’s Ted Hassi.
Khan’s appointment was championed by Senator Elizabeth Warren, who has spoken out against Kroger’s takeover of Albertsons.
Fortunately, this story has some political heroes. Sen. Mike Lee (Utah), the top Republican on the Senate Judiciary Committee’s antitrust panel, pledged that he would “do everything in my power to ensure our antitrust laws are robustly enforced to protect consumers from anticompetitive mergers that could further exacerbate the financial strain we already feel in the grocery store checkout aisle.”
Also stepping up to the plate are the attorneys general of Washington state and DC, California, Arizona, Illinois, and Idaho (where Albertsons is headquartered) who have filed lawsuits seeking to stop Cerberus’ $4 billion special dividend.
Last Thursday night, King County Superior Court Commissioner Henry Judson suspended the payout and set a November 10 date for a more detailed hearing by a Washington state judge. Most of the American media will likely be too focused on Elon Musk’s Twitter shenanigans to appreciate the importance of that hearing, let alone cover it.