(Bloomberg) -- Seeking to blunt criticism that their nearly $25 billion merger to create a grocery behemoth would stifle competition, Kroger Co. and Albertsons Cos. agreed to sell some of their stores to a little-known wholesaler. 

C&S Wholesale Grocers would buy 413 supermarkets in 17 states for $1.9 billion, creating what Kroger Chief Executive Officer Rodney McMullen called a “fierce competitor” and ensuring no stores would close as a result of the merger.

It’s an unusual move for a 106-year-old company that isn’t known for its retail operations, but Chairman Rick Cohen has long worked to expand the reach of Keene, New Hampshire-based C&S. Cohen, 71, joined his father at the family business in 1974 and grew it into one of the largest grocery wholesalers in the US, building a $21 billion fortune along the way, according to the Bloomberg Billionaires Index. 

While the closely held company supplies more than 7,500 supermarkets, big box chains and military bases, it operates just 23 supermarkets nationwide. The deal would quickly make C&S into a major retail player.

The only problem? The US Federal Trade Commission isn’t buying it.  

The FTC, along with eight states and the District of Columbia, sued on Monday to block the supermarket merger. In its complaint, the commission called the stores C&S agreed to buy a “patchwork of assets cobbled together by Kroger’s antitrust lawyers.” 

Read More: FTC Sues to Block Kroger’s $24.6 Billion Albertsons Deal 

C&S will struggle to turn the stores into a viable business because the deal doesn’t include things like manufacturing capability vital for private label offerings, pharmacy products and information technology, according to the complaint. 

The company “is deeply committed to our transformation strategy,” which involves “the expansion of our retail footprint,” Lauren La Bruno, a C&S spokesperson, said in an emailed statement. “The purchase of these stores will enable C&S to be one of the leading grocery retailers in the United States.”

Cohen didn’t immediately reply to a request for comment.

A separate complaint filed by Washington state said that C&S has a history of acquiring and then quickly divesting assets. In 2000, it bought 185 Grand Union supermarkets but sold more than 140 within a year, and many “ultimately closed,” according to the complaint.

Labor History

The FTC also raised concerns about whether stores might be shuttered after the sale, citing emails between C&S’s then-CEO, Bob Palmer, and incoming CEO Eric Winn about the wording of a draft press release last year. 

“Do we have to say that we won’t close stores? (the ‘all’ is a problem),” according to the email, which was released by the FTC. “The trick is that they stay open as they transition but then what? Are we committed to this?”

C&S also has a history of closing unionized facilities and shifting operations to non-union locations, Washington state said in its filing. 

Read More: New England Billionaire Hauls Fortune in Unidentified Trucks 

Cohen’s dealings with organized labor go back to soon after he joined the family business, when the company was almost shuttered by a three-week strike at its then-headquarters in Worcester, Massachusetts. That led to Cohen convincing his father to move the business to Brattleboro, Vermont, where it could hire nonunion workers, Bloomberg reported in 2013. 

C&S has “a strong track record of successfully transitioning union employees and their associated collective bargaining agreements,” La Bruno said. 

Warehouse Robots

Regardless of how the merger turns out, Cohen’s fortune is largely insulated. The bulk of his wealth is now in warehouse automation specialist Symbotic Inc., which he founded in 2006. 

Initially created to improve efficiency at C&S warehouses by using robots, Symbotic became so important to Cohen that he left his CEO role at the grocery wholesaler in 2017 to run the company. 

The move paid off. Symbotic went public via a merger with a special purpose acquisition company in 2022. Revenue increased to $1.3 billion last year from $252 million in 2021, and its stock is up about 300% from the merger price.

Cohen and his family continue to own 70% of the $23.2 billion company, even after selling shares worth nearly $200 million this month. 

By comparison, C&S is worth about $4.8 billion, according to the Bloomberg wealth index. Revenue at the wholesaler has declined by 20% over the past six years to $21.7 billion, according to Moody’s.

Symbotic’s customers include grocery giants like Albertsons, Walmart Inc. and Target Corp. Walmart owns about 13% of the company, meaning that if the merger closes, one of Cohen’s biggest competitors in groceries would also be a key customer and owner in his other, more valuable business. 

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