Albertsons to Buy Back 33 Stores It Sold as Part of Merger With Safeway
Judge approves purchase as part of Haggen Holdings’ bankruptcy process
A former Albertsons store in Palmdale, Calif., which was bought by Haggen Holdings. Haggen struggled to make its new stores work. PHOTO: MEL MELCON/LOS ANGELES TIMES VIA GETTY IMAGES
Grocery store chain Albertsons Cos. is buying back 33 stores the government required it to sell when it acquired rival Safeway Inc. earlier this year, a highly unusual development approved by a judge on Tuesday that highlights a misfire by U.S. antitrust enforcers.
Little has gone according to plan since the Federal Trade Commission allowed the Albertsons-Safeway tie-up in January on the condition that the companies sell 168 stores to preserve competition in several Western states. Without the divestitures, Albertsons would be too dominant in 130 local markets, the FTC said when it agreed to a settlement with the merging companies.
Most of those divested stores went to a small Pacific Northwest chain, Haggen Holdings LLC, which planned a major expansion with the new assets. The FTC believed Haggen would serve as competitive check against Albertsons, preventing the postmerger entity from raising prices.
Instead, Haggen, which became roughly nine times larger almost overnight, struggled to make the new stores work. It filed for bankruptcy within months and slated more than 100 of the newly purchased stores for closure, threatening jobs and leaving shoppers and suppliers with fewer outlets.
It also put the FTC in a tough spot. Competing grocers have lined up in bankruptcy proceedings to purchase some of the Haggen stores but not all stores. In some circumstances, it meant that if Albertsons didn’t take them back, no one would.
In areas where there was no alternative buyer, “it is better for consumers that Albertsons operate a store, so we have not objected to Albertsons buying back stores that other supermarket operators were not interested in,” said FTC spokeswoman Betsy Lordan.
Robert Feinstein, lawyer for the official committee of unsecured creditors in the Haggen case, added that “there was a real risk nobody would buy these stores, in which case they would go dark, liquidate, and it would be a catastrophe.”
A federal bankruptcy judge approved the sales to Albertsons on Tuesday.
Haggen lawyer Frank Merola said in court that the FTC had agreed to Albertsons’ participation in the bankruptcy auction on a store-by-store basis. He also said Albertsons may go back to the FTC about acquiring additional locations.
Justin Ewing, an Albertsons executive vice president of corporate development, told U.S. Bankruptcy Judge Kevin Gross the company hoped to reopen the reacquired stores next year. A company spokesman didn’t respond to requests for comment.
Haggen paid more than $300 million to buy 146 operating stores and assets from Albertsons, according to court documents. Albertsons is paying about $14 million to reacquire the leases on 33 stores in Arizona, California, Nevada, Oregon and Washington, which are in the process of closing.
According to a list of winning bids, Albertsons’ successful bid price for more than a half dozen of the stores was $1 each, though the company will also assume financial liabilities that go along with the properties. In some circumstances, Albertsons was going to be liable if Haggen didn’t pay its rent, according to people familiar with the matter.
In about 10 locations where Albertsons is reclaiming stores, the FTC had said the grocer’s acquisition of Safeway would lead to monopoly or duopoly environments, meaning communities would have few, if any, other competitive options.
One of those is Baker City, Ore., which has two grocery stores, one currently a Safeway, the other a Haggen that is closing soon and is being repurchased by Albertsons. Mike Kee, city manager of Baker City, said the county, with 20,000 people, needs two grocery stores even if the same company owns both.
“I was happy to hear that Albertsons bought that store back, and that is what I’ve heard from people in the community,” Mr. Kee said. He added, “I think we can all see the downside of it. They’re not going to compete against each other.”
Separately, Haggen and Albertsons remain tangled in litigation. Haggen alleges that Albertsons engaged in anticompetitive conduct that thwarted its entrance into new markets, an allegation Albertsons denies. Albertsons has separately sued Haggen for unpaid inventory, a claim which Haggen rejects.
Maurice Stucke, a University of Tennessee law professor and lawyer with The Konkurrenz Group, said there is always some risk that a buyer of divested assets from merging companies won't be able to fully replace competition as the government hopes.
But the Albertsons situation, he said, has gone particularly poorly. “Clearly this isn't what you want in a merger remedy,” he said.
