Antitrust Law Daily Wrap Up, ACQUISITIONS & MERGERS NEWS: Nevada Attorney General seeks to halt Albertson’s-Safeway merger, (Feb 2, 2015)

By Linda O’Brien, J.D., LL.M.

The proposed acquisition by supermarket operator Albertson’s of retail supermarkets owned and operated by competitor Safeway may substantially reduce competition in the provision of retail supermarket goods and services in a certain county in Nevada, according to a complaint filed by the Nevada Attorney General in the federal district court of Las Vegas (State of Nevada v. Cerberus Institutional Partners V, January 30, 2015).

AB Acquisition, LLC, owned by New York-based private equity firm Cerberus Institutional Partners V, L.P., is the parent company of Albertson’s LLC, Albertson’s Holdings LLC, and Saturn Acquisition Merger Sub, Inc. Safeway Inc. is one of the largest food and drug retailers in the United States.

The complaint alleges that, in March 2014, Albertson’s and its subsidiaries entered into an agreement with Safeway under which Albertson’s proposed to purchase all of the common stock of Safeway in a transaction valued at $9.2 billion. As a result of the acquisition, Albertson’s would acquire various retail supermarket locations, including 14 stores located in Clark County, Nevada.

Supermarkets provide a distinct set of products and services and offer consumers the convenience of “one-stop shopping” for food and grocery items. Supermarkets primarily compete with other supermarkets and base their prices primarily on the prices of food and grocery items sold at nearby competitors. Although retail stores may also sell food and grocery items, these types of stores—convenience stores, specialty food stores, and club stores—do not individually or collectively provide sufficient competition to effectively constrain prices at supermarkets, the complaint alleges.

According to the complaint, consumers are motivated by convenience and the vast majority of consumers’ grocery shopping occurs at stores located in close proximity to where they live. The relevant geographic markets in which to assess the competitive effect of the proposed acquisition are in Clark County, Nevada. A hypothetical monopolist controlling a dominant share of the supermarkets in this area could profitably raise prices by a small but significant amount.

The proposed acquisition will substantially increase concentration in each of the relevant geographic markets. The market concentration levels in each of the relevant geographic markets gives rise to the presumption that the proposed acquisition, if consummated, would be unlawful. Additionally, the proposed acquisition would likely substantially lessen competition for retail sale of food and other grocery products in supermarkets in the relevant geographic markets by (1) eliminating direct competition between Albertson’s and Safeway; (2) increasing the likelihood that Albertson’s would unilaterally exercise market power; and (3) increasing the likelihood of coordinated interaction between the remaining participants in the relevant geographic markets, the complaint alleges.

Entry into the relevant geographic markets would not be timely, likely, or sufficient in magnitude to deter the likely anticompetitive effects of the proposed acquisition. There are significant barriers to entry including the time and cost of conducting market research, the availability of appropriate supermarket locations, obtaining necessary permits and approvals, construction costs, and generating sufficient sales to have a meaningful impact on the market.

The Nevada Attorney General asserts claims for violations of the Clayton Act and Nevada Unfair Trade Practice Act. The action seeks injunctive relief, costs of suit, attorneys’ fees, and any other just and proper relief.

Along with the complaint, the Attorney General filed a joint stipulation for entry of a judgment, providing relief that competition will not be substantially lessened as a result of the transaction alleged in the complaint. The stipulation, arrived at after arms-length negotiation, requires the divestitures of certain Nevada assets by the defendants and the payment of attorneys’ fees to the state.

In a related action, the Attorney General for the State of Washington has filed suit in the federal district court in Seattle, seeking to enjoin Albertson’s proposed acquisition of certain supermarkets operated by Safeway that are located in 27 relevant geographic markets in the State of Washington (State of Washington v. Cerberus Institutional Partners V, January 30, 2015). The Attorney General alleges that the transaction if approved, may substantially lessen competition for the retail sale of food and grocery items.

On the same date, the Washington Attorney General filed a proposed consent decree and agreed motion for endorsement of consent decree, stating that the consent decree contains remedies that are designed to address the potential lessening of competition as a result of the transaction alleged in the complaint. In the agreed motion, the defendants agree to be bound by the provisions of the consent decree, pending approval by the court.

On January 27, 2015, following an FTC investigation, Albertson’s and Safeway agreed to sell 168 supermarkets to settle FTC charges that their proposed merger would likely be anticompetitive in 130 local markets in Arizona, California, Montana, Nevada, Oregon, Texas, Washington, and Wyoming (In re Matter of Cerberus Institutional Partners V, L.P., File No. 141-0108).

The cases are Nos. 2:15-cv-00176-JAD-NJK and 2:15-cv-00147.

Attorneys: Adam Paul Laxalt and Eric Witkoski for the State of Nevada. Kirk B. Lenhard and Nikki L., Baker (Brownstein Hyatt Farber Schreck, LLP) for Cerberus Institutional Partners V, L.P., Safeway Inc., and AB Acquisition LLC. Robert W. Ferguson, Darwin Roberts, Jonathan Mark, and Stephen T. Fairchild for the State of Washington.

Companies: Cerberus Institutional Partners V, L.P.; Safeway Inc.; AB Acquisition LLC

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