The Kroger and Albertsons Merger Analysis

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The Kroger and Albertsons Merger Analysis

Kroger and Albertsons, two large US grocery store chains, announced their merger in October 2022. The merger was expected to benefit customers, communities, and employees. However, the article by Creswell (2023) reports that the private-equity giant Cerberus and a group of investors may win the $24.6 billion deal. This poses a major challenge that may significantly hinder the process of the merger. Albertsons is obliged to pay a $4 billion dividend to their stakeholders, including the buyout group owning 73 percent of the company, which can financially weaken the company (Creswell, 2023). The state attorney general tried to stop the payment of dividends by Albertsons, but the Washington State Supreme Court declined to consider the case. Thus, the merger is currently at risk of closing as Albertsons may be acquired by Cerberus.

Additionally, consumers express preoccupation about the future merger of the grocery giants. In particular, they argue that the deal would eliminate any competition among grocery chains, which would lead to rising prices. Jobs are also put at risk as antitrust regulations would probably result in the closing of hundreds of stores after the merger. Smaller grocery retail industry players also have concerns in relation to the deal, as it would make the competitive landscape even more difficult for them.

First of all, it is important to evaluate the reasons for the decision to Kroger-Albertsons Merger. Based on the information presented in the article, it can be identified that Albertsons did not have profits for a long time and did not pay dividends to stakeholders, which changed after the pandemic (Creswell, 2023). The merger would allow Kroger to expand the companys geographic coverage as well as ease the financial burden on Albertsons (Camble et al., 2021). However, after Albertsons began paying dividends to Cerberus and other investors, it became profitable to keep the company under its control, leading it to increase in debt.

The strategic ramifications of the deal would be significant for both grocery chains and the industry as a whole. Kroger would be able to gain a competitive advantage due to new customers and geographical coverage. Albertsons would establish a more secure financial position due to decreased burden in dividends. The industry would probably have negative consequences as the merger will make competition in the market more difficult due to a reduction in the number of players, which may also lead to higher prices. The merger can also lead to reduced profits for the entity due to reduced customer satisfaction (Umashankar et al., 2021). For internal stakeholders, the transaction may have positive consequences due to the increase in the financial stability of the company. In particular, the pooling of assets will allow more efficient dividend payments and upgrade the network for increased performance. For external stakeholders, including employees and consumers, the merger can be negatively impacted by job cuts and higher prices due to reduced competition.

Despite the difficulties that companies face during the merger, the transaction has a number of advantages. In particular, this solution can help optimize the operation of the new structure. After the merger, the company needs to transform existing procedures and regulations, which will help in identifying existing problems and eliminating them (Camble et al., 2021). Additionally, the new organization can gain a greater competitive advantage through increased efficiency. Finally, the merger can lead to the creation of a new, more successful company that, through active financial activity, can implement continuous improvement and development.

At the moment, the transaction has a low probability of successful completion. However, upon its completion, the company may encounter a number of unforeseen circumstances that cannot be foreseen at the planning stage. One of the potential drawbacks of the merger may be the departure of key employees who will not be able to come to terms with institutional changes (Camble et al., 2021). Reducing the number of stores can lead to a drop in profits. Additionally, the morale of employees who stay in a new company can be significantly reduced due to strategic changes.

References

Camble, J. E., Peteraf, M. A., & Thompson, A. A. (2021). Essentials of strategic management: The quest for competitive advantage (7th ed.). McGraw Hill.

Creswell. J. (2023). Kroger-Albertsons merger faces long road before approval. The New York Times. Web.

Umashankar, N., Bahadir, S. C., & Bharadwaj, S. (2022). Despite efficiencies, mergers and acquisitions reduce firm value by hurting customer satisfaction. Journal of Marketing, 86(2), 6686. Web.

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