(Bloomberg) -- The US Federal Trade Commission and a group of states are poised to sue as soon as next week to block the tie-up between supermarket giants Kroger Co. and Albertsons Cos., according to people familiar with the plans. 

The suit is expected before Feb. 28, when an agreement not to close the deal between the companies and the FTC expires. Several states are expected to join the suit alongside the federal antitrust enforcers, the people said. 

The companies are working to schedule meetings with FTC Chair Lina Khan and the agency’s other commissioners in an effort to persuade the antitrust agency not to sue over their proposed deal, said the one of the people, who asked not to be named discussing confidential matters. 

Albertsons shares dropped as much as 2.7% on the news and closed the Tuesday trading session 1.4% lower at $21.28. That put the deal spread between the stock and Kroger’s $27.25 offer at roughly $6. While the gap is still lower than March’s record high of $8.05, it remains an indication that investors are highly skeptical the deal will get through. Kroger shares rose 1.4%.

A Kroger spokeswoman said that the company remains in ongoing discussions with the FTC and state regulators and that the merger will lead to lower prices, more union jobs and broader choices for consumers.

“Blocking the combination will only embolden large, nonunionized retailers — like Walmart, Amazon and Costco — to continue opposing unions and leaving communities,” she said.

Albertsons said that the company continues to work closely with the FTC and that the proposed merger will expand competition, lower prices and an improved shopping experience for customers. 

An FTC spokesman declined to comment.

Preparing Complaint

The FTC and state attorneys general have been preparing a complaint to block the $24.6 billion acquisition amid concerns the merger would lead to lower wages for workers and higher prices for groceries.

Earlier: California Considering Lawsuit to Block Albertsons-Kroger Deal

A meeting between the companies and the FTC commissioners — who make the final call on whether to file a case — is the last step before a lawsuit or a settlement is filed, often referred to as a “last rites” meeting. 

A combined Kroger-Albertsons would have nearly 5,000 stores across the country, merging the banners of Kroger, Ralphs and Harris Teeter with Albertsons, Safeway, Acme and Jewel-Osco, among others. As Kroger reiterated Tuesday, the supermarket chains say the deal is needed to better compete with bigger rivals Amazon.com Inc. and Walmart Inc.

Kroger and Albertsons, which announced the proposed merger in late 2022, have said they would invest $500 million to cut prices and $1 billion to raise worker wages and benefits, in addition to $1.3 billion to improve Albertsons stores. The supermarket operators have said the deal would give them more leverage in negotiations with suppliers, boost their technology and increase their market share.

Labor Opposition

The deal has faced opposition from some labor groups and elected officials, and Kroger has said the companies are committed to fight for the deal in court if needed. In a bid to stave off the antitrust concerns, the companies agreed to divest at least 413 stores to Piggly Wiggly chain owner C&S Wholesale Grocers Inc. — itself a nonunionized employer.

The Teamsters union and the United Food and Commercial Workers International have both expressed opposition to the deal. Teamsters represents 22,000 workers at Krogers and Albertsons, most of whom are warehouse employees or truck drivers, while the UFCW, mainly represents in-store workers. The Teamsters in particular has raised concerns about C&S as a potential buyer, noting the company’s small presence in retail and its history of moving work away from unionized facilities.

In an interview with Bloomberg last week, California Attorney General Rob Bonta said the FTC’s announcement of a complaint against the Kroger-Albertson deal is “coming up” without specifying a date and that California would likely sign on, reiterating his comments from last year. California is among the states most affected by the deal: A combined Kroger and Albertsons would have 895 stores in the state, though they’ve pledged to sell at least 66 of them to C&S.

Two states — Washington and Colorado — have already sued over the deal in state court. In an interview with Bloomberg, Colorado Attorney General Philip Weiser said the state plans to pursue a preliminary injunction to block the deal regardless of any federal action.

Colorado alleged in its suit filed last week that the two grocers entered an illegal agreement not to poach each other’s workers during a 2022 strike by Kroger employees. The companies also agreed not to solicit pharmacy customers to switch. Weiser said the state plans to pursue its case over those agreements notwithstanding any developments related to the merger.

The FTC and grocers have been negotiating over the proposed divestiture for the past several months amid concerns by antitrust enforcers about failed divestitures in the supermarket industry, particularly following Albertsons’ purchase of Safeway in 2015.

The Biden administration has stepped up antitrust enforcement as a keystone of its economic policy, seeking to reverse what antitrust officials view as decades of lax oversight over corporate consolidation and market power. 

While the FTC’s complaint is a negative development for the deal, investors have long expected a challenge and still price in decent odds that the companies will prevail in court and overcome the regulatory hurdles.

--With assistance from Anna Edgerton and Yiqin Shen.

(Updates with details on union opposition to the deal. A previous version of the story was corrected to remove the characterization of spread in the fourth paragraph.)

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