Colorado Attorney General Phil Weiser filed a lawsuit Wednesday seeking to block a proposed $24.6 billion merger between the Kroger and Albertsons grocery store chains while alleging collusion between the companies during a 2022 strike by Albertsons employees in Denver.

Kroger operates 148 King Soopers and City Market stores in Colorado, and Albertsons operates 105 Safeway and Albertsons stores in Colorado, making them two of the largest supermarket chains in the state.

Weiser’s lawsuit alleges the proposed merger, which was announced in October 2022, would eliminate head-to-head competition between the supermarket chains in Colorado communities like Steamboat Springs, where Walmart offers a limited selection of groceries and there are few options outside of City Market, Safeway and Natural Grocers.

---

---

“Coloradans are concerned about undue consolidation and its harmful impacts on consumers, workers and suppliers,” Weiser said. “After 19 town halls across the state, I am convinced that Coloradans think this merger between the two supermarket chains would lead to stores closing, higher prices, fewer jobs, worse customer service and less resilient supply chains.”

Colorado’s attorney general has been leading a multi-state investigation into the proposed merger since December 2022. The lawsuit filed Wednesday joins one filed by Washington state’s attorney general last month.

---

---

In challenging the merger, Weiser also contests a “no poach” agreement made between Kroger and Albertsons amid a 10-day strike by unionized King Soopers employees at 78 locations in Colorado in 2022.

Weiser’s lawsuit is seeking $1 million in civil penalties from the companies over the “no-poach” agreement, calling it a violation of the state’s antitrust laws as an example of collusion between Kroger and Albertsons.

The attorney general cited an email sent by Albertsons executive Daniel Dosenbach to his counterpart at Kroger, Jon McPherson, on Jan. 9, 2022.

A copy of the email shows Dosenbach told McPherson, “we don’t intend to hire any King Soopers employees and we have already advised the Safeway division of our position and the division agrees.”

The lawsuit cites additional communications showing the agreement, which also included a commitment from Albertsons against soliciting pharmacy customers from the King Soopers stores “spread to the very highest levels of both companies.”

“The presence of illegal coordinated agreements between Kroger and ACI in Colorado underscores that the threat of collusion is real and not a merely hypothetical risk,” argued Weiser, adding “that collusive activity took place in an already concentrated market that is threatened to become more concentrated through this proposed merger.”

Attempting to lessen the potential impact of the merger, Kroger and Albertsons announced in September plans to sell roughly 50 stores in Colorado to New Hampshire-based C&S Wholesale Grocers.

The head of the grocery, pharmacy and restaurants investment banking practice at Solomon Partners, Scott Moses, spoke in December in favor of the proposed merger.

He said it, “would be reasonable to infer” that in cases where the companies’ stores are near each other and additional competition is scarce, one of the stores would likely be sold to C&S.

In his lawsuit, Weiser argued the proposal was inadequate, labeling C&S as a “wholesaler with minimal retail experience” and adding that “the proposed remedy is like a cure worse than the disease itself.”

“This proposed remedy places the risk of failure on the people of Colorado — not on the merging parties or on C&S, which would acquire the assets at a discount price and stand to recoup its investment in the value of the real estate, even if it cannot successfully compete against the merged entity,” Weiser stated.

Kroger and Albertsons executives have said the proposed merger would allow the combined company to deliver superior value to customers, associates and communities while allowing the stores to compete against discount grocers such as Walmart, which boasts a $314 billion U.S. grocery business that has quadrupled in the last 20 years.

Echoing that argument, Moses cited Walmart’s growth in recent years as an “existential threat” to supermarket companies like Kroger and Albertsons.

“(Walmart’s) grocery business is actually three times the size of Kroger, so $200 billion more, three times Costco, five times Albertsons and Amazon and roughly as large as all four of those companies combined,” Moses said. “Everyone has had to lower prices and gross margin to compete with these fast-growing national discount peers.”

The Federal Trade Commission is conducting its own review of the proposed merger to determine whether the deal would violate federal antitrust laws and is expected to announce its decision later this month, according to the lawsuit.

Weiser signaled his office’s intention to file a temporary restraining order should, pending approval from federal regulators, Kroger and Albertsons attempt to close the deal before the lawsuit can proceed in court.

Kroger and Albertsons released a statement to media outlets saying the companies were “disappointed” in the Attorney General’s “premature decision to file a lawsuit while the merger is still under regulatory review, and we remain in active dialogue with the FTC and the other state Attorney Generals.”