A proposed $2.5 billion merger of Lucky and Alpha Beta supermarket chains has been blocked by a federal judge who maintained the deal would kill competition and severely hurt consumers.
In issuing a preliminary injunction Thursday, U.S. District Judge David Kenyon ruled the proposed merger of two companies that are among the 10 largest grocery chains in the United States appears to violate the Clayton Antitrust Act by lessening competition.Kenyon's order, contained in a 27-page opinion focusing on supermarket-competition data in California, freezes the merger until a trial can be held on the antitrust issues. No date has been set for a trial.
"This court finds that unless defendants are enjoined, the citizens of California will be substantially and irreparably harmed," said Kenyon.
California Attorney General John Van de Kamp sued to bar the acquisition of Lucky Stores Inc. by American Stores Co., the Irvine-based nationwide grocery and drugstore company that owns Alpha Beta. Van de Kamp said the merger would kill competition and thus drive up prices at the checkout stand.
American Stores, in a news release, vowed to appeal the decision.
Van de Kamp said he was pleased with the judge's ruling but cautioned that "this is only an initial victory."
"But for now, the consumers are protected," he said.
Lawyers for American stores argued the merger would benefit consumers and allow price cutting through a more efficient, joint operation.
They also contended American was unfairly harmed being by a delay in its acquisition of Lucky, which is based in Dublin, Calif., and has markets in several states. They said Van de Kamp's suit was too late to stop a virtually completed business deal.
Lucky agreed in May to the $2.5 billion buyout by American. American, with 1,600 supermarkets and drugstores nationwide, rivals Kroger Co. of Cincinnati as the nation's biggest market chain.
Kenyon said he considered the Alpha Beta-Lucky plans in light of the recent purchase of 172 Safeway markets in Southern California by the Vons supermarket chain.
After the two combinations, Vons will have 350 stores and Lucky-Alpha Beta would have 550.
The attorney general also opposed the Vons deal, but negotiations produced an agreement in principle to settle that disute, Mary McAboy, spokeswoman for the Vons Co., said Thursday. She refused to reveal details of the agreement.
Both sides in the Alpha Beta-Lucky case presented statistics on how the planned merger would affect grocery buyers. Van de Kamp said Californians would have a $400 million annual increase in grocery bills if both combinations took place. American Stores insisted its proposal would cut prices by $50 million a year.
Both the Alpha Beta-Lucky deal and the Vons-Safeway purchases were approved by the Federal Trade Commission, which analyzes such combinations for possible harm to competition. To preserve competition, the FTC ordered Vons to sell 12 stores and American to sell 37.
In the case of American Stores, the FTC's decision was tentative and a "hold separate agreement" was in effect. Kenyon said such an agreement requires the independent operation of both chains until the merger is final.