RBC analyst Steven Shemesh suggests that if the $25 billion merger between U.S. grocers Albertsons (ACI, Financial) and Kroger (KR) is blocked in court, Albertsons' stock might drop to $21 per share. Recently, Albertsons closed at $18.26. Kroger announced its intent to acquire Albertsons for $24.6 billion in 2022, aiming to create a grocery powerhouse across the U.S. and become one of the nation's largest employers.
The proposed merger has sparked legal challenges over concerns it would reduce market competition and harm consumer interests. The Federal Trade Commission (FTC) filed a lawsuit to prevent the merger, arguing it would lead to higher prices for consumers. Several states and Washington D.C. have also joined efforts to block the deal. Colorado and Washington have independently sued to terminate the merger agreement.
In response to regulatory concerns, Albertsons and Kroger announced plans to sell 579 stores to appease antitrust reviews and ensure healthy market competition. In August, Kroger proposed to lower grocery prices by $1 billion post-merger, doubling its previous commitment of $500 million, to address antitrust concerns.
Shemesh maintains an "outperform" rating on Albertsons, with a price target of $23. He notes that if the merger fails, Albertsons might explore alternative strategies to enhance shareholder value as identified in its 2022 strategic review. He also anticipates fundamental investors may enter the market at around $16.
