CINCINNATI — It was CEO Day at the federal antitrust hearing that will likely determine whether the Cincinnati-based Kroger Co. can pull off the largest acquisition in its history.
Kroger CEO Rodney McMullen met the moment with testimony that was “matter of fact and pretty friendly,” according to a Bloomberg reporter who watched the appearance live and talked to WCPO 9 News about it afterwards.
“Mr. McMullen is pretty charming,” said Leah Nylen, who has covered antitrust cases for more than a decade. “He actually didn’t get flustered at all. It was very impressive.”
McMullen was the first witness called after the Federal Trade Commission rested its case against Kroger’s $24.6 billion acquisition of the Albertsons grocery chain. The FTC and nine states are suing to block the deal, claiming it will reduce competition that prevents high prices and low wages.
Kroger has argued the merger is necessary for it to compete against larger retail rivals, including Walmart, Amazon and Costco, along with fast-growing discount chains like Aldi and Lidl.
U.S. District Judge Adrienne Nelson scheduled a three-week hearing that ends Sept. 13. The FTC is seeking a preliminary injunction to let an FTC administrative law judge explore in more depth whether the merger violates federal antitrust rules. Kroger attorneys have said such a delay would effectively kill the deal.
And that’s where the case stood Wednesday, when McMullen testified for more than two hours before Albertsons CEO Vivek Sankaran took the stand.
Nylen said McMullen had an answer for every FTC criticism of the deal, but Sankaran struggled to explain why text messages were deleted from his phone after receiving a preservation hold from the FTC. The agency asked Judge Nelson to “draw an adverse inference” from the missing texts, meaning she could view the FTC’s case more favorably because evidence is missing.
Nylen said the testimony showed Albertsons allows employees to use their own phones for work, so it depends on those employees to preserve records when required. Sankaran was one of three Albertsons employees who accidentally set their phones to delete messages after 30 days. That meant the FTC was unable to see Sankaran’s messages to McMullen, his board of directors and executives of C&S Wholesale Grocers, which agreed to buy 537 Kroger and Albertsons stores to reduce antitrust concerns.
“Mr. Sankaran said he was horribly embarrassed when he discovered that this auto-delete function was on,” Nylen said. “He went on about how he personally called AT&T to see if they could recover his text messages.”
Much of McMullen’s testimony focused on whether Kroger will raise prices after eliminating one of its biggest competitors.
McMullen “really pushed back on that idea,” Nylen said. “He said, ‘if we were to try and raise prices, we would lose business – particularly to people like Costco, like Walmart, like Aldi and Lidl.’”
When the FTC countered that Kroger’s pledge to invest $1 billion in lower prices is not legally binding, McMullen had an answer.
“While it’s not legally binding, in his view it’s sort of reputationally binding. Like, if we say this and then go around and do the opposite right after the merger goes through, no one’s going to believe us anymore.”
McMullen also pushed back on the FTC’s assertion that the merger will reduce the bargaining power of unions.
“He said he grew up in a union family. He once was a union worker for Kroger,” Nylen said. “When they were looking at divestiture options, one of the most important things to him was that whoever buys the stores agrees to honor the union contracts. And because of that, even though they got more than 100 offers, he only believed that there were three of them that were really viable because of this promise that they wanted, that they would honor the union contracts.”
While Nylen thought McMullen was effective at selling the deal, she could not tell whether Judge Nelson was moved by the testimony.
“She is very hard to get a read on,” Nylen said. “She doesn’t ask many questions. She’ll rule if there are objections, but she doesn’t ask questions herself.”
So, charming or not, it isn’t clear whether McMullen’s testimony resonated with the judge.
“The judge actually instructed the witnesses that she does not want them looking at her, that their job is to testify before the court,” Nylen said. “She has been instructing witnesses to look out at the legal team and not at her specifically.”
The hearing ends on September 13 and the judge hasn’t said how quickly she’ll rule. If Kroger wins at this stage, an FTC administrative hearing could start in October, but Kroger is suing to block that.
