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Column: Good riddance to the merger of grocers Albertsons and Kroger, which would have cost you money

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Column: Good riddance to the merger of grocers Albertsons and Kroger, which would have cost you money

The inside stories of messy marriage breakups have been an entertainment staple since even before Tolstoy observed that “every unhappy family is unhappy in its own way.” So let’s thank the supermarket giants Kroger and Albertsons, whose $24.6-billion merger has collapsed amid mutual recriminations, for their outstanding contribution to the genre.

The proximate cause of the breakup was the granting of a preliminary injunction against the deal by U.S. Judge Adrienne Nelson of Oregon. Nelson’s ruling, issued Tuesday, was a response to a motion by the Federal Trade Commission, the District of Columbia and eight states including California. (A state judge in Washington also ruled against the merger the same day.)

Although the two companies had fought the challenges to the merger seemingly hand in hand, their accord dissolved within 24 hours of Nelson’s ruling. Boise, Idaho-based Albertsons sued Kroger on Wednesday, citing the latter’s alleged “failure to exercise ‘best efforts’ and to take ‘any and all actions’ to secure regulatory approval” of the deal.

The overarching goals of antitrust law are not met by permitting an otherwise unlawful merger in order to permit firms to compete with an industry giant.

— Federal Judge Adrienne Nelson, blocking the Kroger/Albertsons merger

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Kroger called Albertsons’ claims “baseless” and cited its would-be spouse’s “repeated intentional material breaches and interference throughout the merger process, which we will prove in court.”

Those of us who have followed the deal from its inception in 2022 can add this: “Good riddance.”

The collapse of the supermarket merger may stand as the final antitrust success of the Biden-era FTC, which has taken a hard line toward industry consolidations under Chair Lina Khan. Donald Trump is planning to nominate Andrew Ferguson, an FTC commissioner and conservative lawyer, as the agency’s chairman. Khan will be stepping down.

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The two grocery chains maintained that they needed to merge in order to successfully compete with megastore chains such as Walmart and Costco, which have grown their grocery operations to the point that their sales approach those of Albertsons and Kroger or even exceed them.

The truth is, however, that the squalid nature of this transaction was always self-evident. As I wrote after the original announcement, the merger partners pitched it to the public as a boon to consumers. Merger partners always say this, but the consumer savings and service improvements generally prove elusive.

“We will take the learnings from each company to bring greater value and a better experience to more customers, more associates and more communities,” Kroger Chief Executive Rodney McMullen said then.

McMullen didn’t explicitly say that the deal would mean lower prices, but it would be a rare shopper who didn’t think that “greater value and a better experience” meant anything other than paying less at the checkout counter. Economists and antitrust experts predicted that the creation of a monopolistic supermarket giant would almost surely add inflationary pressure to food prices.

At the heart of the merger, as I further reported, was a $4-billion dividend to be paid to Albertsons stockholders. Six of the largest stockholders were corporate insiders, defined as holders of more than 5% of Albertsons shares each.

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The biggest shareholder was the private equity firm Cerberus Capital Management, which owns more than 26% of the shares and has four nominees on the company’s board of directors. The other five are investment and real estate funds that hold a total of an additional three board seats.

The six investors control about 75% of Albertsons shares. In other words, they voted themselves a multibillion-dollar handout.

Albertsons had claimed that the dividend wasn’t connected to the merger but was “part of Albertsons’ long-term strategy for growth,” which was “determined well before Albertsons’ discussions with Kroger began.”

Yet the companies’ own merger announcement had stated explicitly that the $4-billion dividend was “part of the transaction.” They counted the dividend as part of the merger price, accounting for $6.85 per share of the $34.10 per share payable to Albertsons shareholders. The dividend was approved by the Albertsons board at the very same meeting at which it approved the merger deal itself.

It should go without saying that funneling $4 billion to insiders off the top wasn’t going to make it any easier to bring consumers lower prices at the checkout counter.

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Then there was the issue of Albertsons’ corporate conduct. In October, Albertsons reached a $3.9-million settlement with the attorneys general of Los Angeles County and six other California counties as well as the FTC over accusations that the chain ripped off customers at hundreds of its Vons, Safeway and Albertsons stores in California. The company didn’t admit to liability in settling the case, but the terms of the final judgment suggest that the counties and the FTC had the goods — or at least had enough evidence that Albertsons thought it wise to make the case go away.

Albertsons says it has now implemented policies and employee training to ensure that its prices are accurate.

The principal issues raised by the FTC and the states concerned the prospects that the merger of America’s two biggest supermarket chains would allow them to dominate their markets as a monopoly or near-monopoly. That pointed to higher prices for customers and lower wages for workers, which are legitimate concerns for antitrust regulators.

Kroger, the largest chain, operates about 2,700 stores in 35 states and the District of Columbia, under brand names including Ralphs. Albertsons’ footprint encompasses about 2,300 stores under names such as Vons, Pavilions and Safeway. As Judge Nelson observed, the two chains have assiduously competed with each other for years, tracking each other’s prices in an effort to seize market share.

To meet the FTC’s objections, the merger partners proposed selling 579 stores to C&S Wholesale Grocers, a privately held supermarket supplier headquartered in New Hampshire that is a tiny fraction of the merger partners’ size — among other metrics, it has about 14,000 employees, compared with 430,000 employees at Kroger and 285,000 at Albertsons. The sale price was to be $2.9 billion.

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Such divestitures are common features of merger deals that face regulatory challenge. But they don’t always meet their goal of preserving competition. A good example is the outcome of a divestiture scheme the FTC ordered in 2014, to mitigate the anticompetitive effects of Albertsons’ takeover of Safeway.

The FTC ordered the divestiture of 168 stores. More than 140 were acquired by Haggen Holdings, an 18-store chain in the Pacific Northwest. As it happened, Haggen was utterly ill-equipped to grow nearly tenfold overnight. Within months it was laying off workers, and before the year was out it had filed for bankruptcy.

Haggen put 100 of the stores back on the block, and 54 of them were reacquired by Albertsons as part of a deal to purchase Haggen outright. Even with the repurchases, the merger resulted in the elimination all competition in some communities.

That history gave Nelson pause when she assessed the new divestiture plan. C&S, she noted, didn’t have very happy experiences when it “dipped its toes into the grocery retail industry before.” The wholesaler bought 220 retail stores between 2001 and 2003, but had sold 190 of them by 2005. The company operates about 25 retail stores under the Piggly Wiggly and Grand Union brands; unlike Kroger and Albertsons, which incorporate pharmacies and gasoline stations into many of their locations, C&S operates only one pharmacy and no gas stations.

In short, Nelson observed, “there are serious concerns about C&S’ ability to run a large-scale retail grocery business that can successfully compete” with a merged Albertsons/Kroger. Among other issues, she wrote, C&S would have to re-brand about half the stores, a process that is “effectively the same as opening a new, unfamiliar grocery store in the eyes of consumers.” C&S didn’t respond to my request for a comment on Nelson’s take, though a spokeswoman told me by email that the firm is still committed to a “transformation strategy, which includes expansion into retail.”

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As for the merger partners’ assertion that their deal was a defensive move against competitors such as Walmart and Costco, Nelson was unmoved. “The overarching goals of antitrust law are not met,” she wrote, “by permitting an otherwise unlawful merger in order to permit firms to compete with an industry giant.”

With the merger dead, the squabbling between the former partners is just beginning. Under their original deal, Albertsons is entitled to a $600-million breakup fee. But it says it will be seeking billions of dollars in costs, due in part to “the extended period of unnecessary limbo Albertsons endured as a result of Kroger’s actions.” Among other things, Albertsons’ asserted that Kroger dithered on divestiture deals that might have met the FTC’s objections.

In response, Kroger said it “went to extraordinary lengths to uphold the merger agreement throughout the entirety of the regulatory process and the facts will make that abundantly clear.”

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Van Nuys landscaping company fined for 'serious' and 'willful' heat violations

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Van Nuys landscaping company fined for 'serious' and 'willful' heat violations

A Van Nuys-based landscaping company has been fined more than a quarter of a million dollars for “deliberately and knowingly” failing to follow state heat protection rules.

The company, Parkwood Landscape Maintenance, must pay $276,425 for failing to provide employees with access to water, shaded area and proper training on preventing heat-related illness, according to the California Division of Occupational Safety and Health, known as Cal/OSHA.

The landscaping company lacked written procedures for how to protect employees in high temperatures that often exceeded 95 degrees, and employees were forced to purchase their own drinking water, in violation of the rules, which require that employers provide fresh drinking water free of charge, the Cal/OSHA citation said.

The citation marks the first time the workplace safety agency has issued its most severe charge for a heat safety violation, determining the violations were “serious” and “willful.”

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A violation is categorized as serious if it could result in injury, illness or death and classified as willful if the employer knew there was a health hazard and took no action to protect against it or had been previously cited for failing to take action, said former Cal/OSHA investigator Garrett Brown, who retired in 2014 after 20 years with the agency.

Parkwood Landscape was cited previously, in 2022, for failing to meet heat safety requirements. Despite being provided with information on how to change its procedures, the company did not implement necessary preventative measures, Cal/OSHA said.

“Employers have a responsibility to protect their workers from the dangers of extreme heat. It is unacceptable for any business to blatantly ignore safety protocols, putting their employees at serious risk,” Cal/OSHA Chief Debra Lee said in a news release from the agency.

Parkwood Landscape will have the opportunity to appeal the citation. The company did not immediately respond to a request for comment.

Cal/OSHA began its investigation in June after receiving a complaint about Parkwood Landscape employees working outdoors without access to water or heat illness training.

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The citation represents an effort by Cal/OSHA to better enforce heat standards after fielding criticism that the agency been beset by inadequate staffing and claims of ineffectiveness. The criticisms come as scorching conditions have intensified in recent years due to climate change, endangering farmworkers, construction workers and others who toil in extreme temperatures.

Cal/OSHA is grappling with high vacancy rates and faced condemnation from lawmakers at a February hearing, during which farmworkers testified that they’d been exposed to extreme heat and pesticides on the job. The agency has begun recruitment efforts to fill those positions but remains understaffed and slow at hiring, even as it seeks to enforce a growing list of heat and other safety regulations.

In 2006, California became the first state in the nation to implement heat standards for outdoor work, requiring employers to provide access to shade and water, and cool-down rests when workers need them. In high heat conditions, defined as temperatures of 95 degrees or higher, employers are required to remind workers of safe practices, encourage breaks and drinking water, and observe them for signs or symptoms of heat illness.

Earlier this year the agency adopted new heat protections that apply to indoor workers, expanding safety measures for more than a million workers laboring in warehouses, kitchens, laundry rooms and other hot indoor settings.

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California issues landmark rules to improve home insurance market

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California issues landmark rules to improve home insurance market

Landmark regulations intended to encourage insurers to write more policies in risky wildfire neighborhoods through the use of complex computer models were released Friday by the state.

Under new rules intended to stabilize California’s troubled home insurance market, insurers will be able to set rates by drawing on a wide swath of meteorological, geographic and other data in establishing rates, rather than largely relying on historical losses.

The insurance industry argued the change was imperative given global warming’s role in a number of wildfires, including in 2017 and 2018 when thousands of homes burned down. In setting their rates, insurers also must account for efforts to make properties fire resistant.

“With our changing climate we can no longer look to the past. We are being innovative and forward-looking to protect Californians’ access to insurance,” Insurance Commissioner Ricardo Lara said in a statement.

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The new regulations — a central element of Lara’s Sustainable Insurance Strategy — drew support from the industry and others, including farm and environmental groups, but a mixed response from consumer advocates. Los Angeles group Consumer Watchdog contends that the computer models will be a “black box” that will lead to sharp premium hikes.

The regulations that take effect Jan. 2 arose out of a broad agreement Lara reached with the industry that gave insurers regulatory concessions, including the use of the computer models, in exchange for a commitment by large insurers such as State Farm, Farmers and Allstate to write policies in neighborhoods prone to wildfires equivalent to 85% of their statewide market share. That would mean, for example, an insurer with a 10% share of the state’s homeowners insurance market would have to cover 8.5% of the homes in riskier neighborhoods as identified by the department. No such requirement currently exists.

The changes come as residents living in mountainous and hillside neighborhoods have found insurance harder to come by, forcing them to buy bare-bones policies from the FAIR Plan, the state’s insurer of last resort, which has seen its risk exposure mushroom from $153 billion in 2020 to $458 billion as of September.

The regulations establish a process by which the computer models, which are developed by companies such as publicly traded Verisk Analytics, can be reviewed by the state and the public. The department also said it has hired an expert in a newly created position to oversee the process of “examining model integrity and ensuring public review.”

Consumer Watchdog has argued that the review process will still allow the modeling companies and their client insurance companies to keep essential elements of the proprietary models out of the public’s eye, violating the public review provisions of Proposition 103, the 1988 initiative spearheaded by the group that rewrote the state’s insurance regulations.

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It also contends there are loopholes that will allow insurers to skirt the 85% coverage threshold.

“Consumers should expect large rate hikes but not more insurance policies sold under the new rules,” Carmen Balber, executive director of Consumer Watchdog, said in a statement.

Michael Soller, Lara’s chief spokesperson, disputed the criticisms and said the department’s regulatory review process gives it the authority to prevent unwarranted rate hikes and to ensure that insurers are making progress in meeting the 85% coverage goal.

“We don’t get this done unless we have companies writing policies. If you don’t write the policies, you don’t use the tools,” he said.

Amy Bach, executive director of San Francisco group United Policyholders, acknowledged there was “wiggle room” in the regulations regarding the coverage threshold, but she expected there would be negotiations as insurers file for rate hikes and are pushed to meet the 85% figure.

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“The principle is there, the concept is out there, the deal is out there, and honestly, there’s no other solutions on the horizon that are anywhere close,” she said.

The department noted support from the Environmental Defense Fund, which was quoted stating the models “are essential for modeling perils like flood and wildfire that are now worsening as the planet warms.” Also cited was the California Farm Bureau, which said the models should increase insurance access for farmers.

The American Property Casualty Insurance Assn., a national trade association representing home, auto and business insurers, released a statement that called California’s current insurance regulations “outdated” and “too slow to respond to rapidly evolving conditions.”

“California will continue to have a robust regulatory and rate approval process that guarantees that rates reflect the actual cost of covering claims. We look forward to working with [the department] to implement these new regulations and make sure they are efficient and workable,” it said.

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After Los Angeles County bought a skyscraper, a fight over whether to tear down its historic headquarters

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After Los Angeles County bought a skyscraper, a fight over whether to tear down its historic headquarters

With the ink dry on the County of Los Angeles’ $200-million purchase of the Gas Company Tower office building downtown, a fight is brewing over what to do with the 1960s-vintage headquarters it plans to leave behind.

Supervisor Janice Hahn and preservationists are pushing back against a plan to move workers into the newly purchased skyscraper on Bunker Hill and raze the Kenneth Hahn Hall of Administration, which was renamed after Hahn’s father and is a centerpiece of the government-oriented Civic Center neighborhood.

“It came as a big shock to me when I realized what was happening,” she said, blaming county administrators for quietly pushing through what she called a closely held plan to move the seat of county power and thousands of workers, then knock down a prominent public building.

“I thought it was a little bit of a secretive process, a little bit of they knew what they were doing, but didn’t exactly reveal it,” she said.

County officials, however, plan to start moving staff from the Hall of Administration and other county buildings into the downtown skyscraper next summer, the start of a process that could take three or four years.

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Los Angeles County’s $200-million purchase of the Gas Company Tower in downtown L.A. is complete and county workers are slated to start moving in next summer.

(Myung J. Chun / Los Angeles Times)

Preliminary county plans call for razing the Hall of Administration but keeping the building where the Board of Supervisors convenes in public sessions. That building is connected to the Hall of Administration but is a separate structure that could stand on its own.

The plan to raze the Hall of Administration is not set in stone, county officials said. Formal planning for the future of the site will begin in early 2025 and a master plan should be complete in about a year, followed by an environmental review of the plan that may last into 2027. But keeping the building would raise budget challenges because a large portion of the funds used to buy the Gas Company Tower came from money that had been earmarked for seismic retrofits and other necessary fixes to the Hall of Administration and other county buildings.

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Hahn cast the sole “no” vote on the county’s purchase of the Gas Company Tower last month. When she first learned of the proposal to buy the 52-story building, which faced foreclosure, she thought it was an opportunity for the county to make a favorable investment in a down market. The county could potentially consolidate some of its many offices there and then sell it later at a profit when the office real estate market recovered.

Then, she said, “it was revealed” that the plan was to move the the Board of Supervisors offices and county services to the Gas Company Tower, and ultimately demolish the Hall of Administration.

“It’s really still unnerving to me, and a bit of a shock, that this was their plan all along,” Hahn said. “I think the public is still a little in the dark about what the plan is.”

The Hall of Administration was a source of civic pride when it and other key buildings in the Civic Center, including the Los Angeles County Superior Court — Stanley Mosk Courthouse, were being built starting in the 1950s.

“What the Acropolis was to Ancient Greece during her Golden Age, the new Civic Center now being hewn from the shabby slopes of Bunker Hill will be to Los Angeles,” The Times wrote in 1957.

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The Hall of Administration was being built to last a century, it was reported. The capital projects analyst in the office of the county’s chief administrative officer was “ready to wager the Hall of Administration will still be in service by 2059,” The Times said

The building was renamed the Kenneth Hahn Hall of Administration in 1992 in honor of Hahn’s father, who was the county’s longest serving supervisor and a former Los Angeles city councilman.

Hahn said she is not driven by his legacy to save the building.

“Hey, if you want to take the name off, if that makes you feel better about preserving it,” she said, “I’m OK with that.”

The head of the Los Angeles Conservancy, which advocates for the preservation of meaningful local structures, said the Hall of Administration is “definitely historic” and significant. It was designed by a prominent team of midcentury architects including Paul R. Williams, the first licensed Black architect west of the Mississippi, who designed movie stars’ homes and prominent public buildings.

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Knocking the Hall of Administration down would be “a misstep for a lot of reasons,” conservancy President Adrian Scott Fine said.

Among the reasons to keep it, he said, is its position across Gloria Molina Grand Park from the Mosk Courthouse. The two are a pair that frame the park connecting City Hall with the Music Center.

“These two buildings are integral” to the Civic Center, Fine said. “You can’t lose one without losing the function that they were intended to do.”

The Hall of Administration public spaces are filled with light brown marble and terrazzo that can make the halls feel institutional. There are spots in the building that appear to need painting, patching and other maintenance.

“It’s kind of a bleak place,” acknowledged frequent visitor Will Wright, director of government and public affairs for the L.A. chapter of the American Institute of Architects. “Which tells me you really need to invest in its upkeep.”

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With investment the county could “restore and uplift” the interior to make it more appealing to employees and visitors, he said.

Ideally, the county would own both the Gas Company Tower and a restored Hall of Administration, Wright said, a position Hahn supports.

“I believe the amount of money that it would take to retrofit this is still an amount of money that we could easily find in a $50-billion budget,” Hahn said in an interview in her office. “I don’t think it’s too big of an ask for what this has meant for decades to the people of Los Angeles County.”

Los Angeles County oversaw the renovation of the Hall of Justice a decade ago.

Los Angeles County oversaw the renovation of the Hall of Justice a decade ago. The historic building was seriously damaged in the 1994 Northridge earthquake.

(Myung J. Chun / Los Angeles Times)

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The Hall of Administration is less flashy than other downtown landmarks such as the Walt Disney Concert Hall, City Hall and the LADWP headquarters, but it doesn’t need to be eye-catching to be important, real estate developer and preservationist Dan Rosenfeld said.

“Not every public building needs to scream for attention,” he said. “It would be a very discordant city if they did.”

Rosenfeld worked on preserving other significant historic downtown buildings that were seismically unsafe and threatened by the wrecking ball, including City Hall and the Hall of Justice, both of which date to the 1920s and remain in use after renovations.

“It would be relatively simple to reinforce the building for lateral seismic strength and to modernize the interior,” Rosenfeld said of the Hall of Administration. “The building can and should be saved.”

The Hall of Administration is part of a Civic Center with public spaces and state, local and federal buildings “that defines Los Angeles,” he said, and should not be abandoned by the county. The Civic Center “is a symbol of our democracy,” he said, a place where citizens gather to celebrate, protest and mourn.

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“A civic center is more than a collection of buildings,” Rosenfeld said. “It is a symbol of what a community believes in.”

The county will not neglect the Civic Center, Chief Executive Fesia Davenport said.

“We understand the importance of a vibrant and well-functioning Civic Center and are committed to maintaining the County’s presence in this vital public space,” Davenport said in a statement. “As we embark on our Civic Center master planning process over the next year, we will be inviting extensive public input to help shape our recommendations to the Board of Supervisors to help guide their decisions on how best to reimagine our Civic Center buildings for optimal public use.”

The 52-story tower Gas Company Tower at 555 W. 5th St. was widely considered one of the city’s most prestigious office buildings when it was completed in 1991. It has nearly 1.5 million square feet of space on a 1.4-acre site at the base of Bunker Hill.

Slightly more than half of the building is leased to a diverse mix of tenants including law firm Latham & Watkins and accounting firm Deloitte, real estate brokerage JLL said. Its namesake tenant, Southern California Gas Co., said in September that it will move from the tower where it has been a primary tenant since the building was completed to another skyscraper a block north at 350 S. Grand Ave.

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Times staff writer Rebecca Ellis contributed to this report.

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