By Sam Boughedda
RBC Capital analysts said in a note to clients Wednesday that an outcome on Kroger's (NYSE:KR) proposed $24.6 billion acquisition of Albertsons Companies (NYSE:ACI) could take another year.
The deal is being reviewed by the Federal Trade Commission (FTC), which has come under pressure from some U.S. lawmakers and consumer advocacy groups to block the deal due to worries it could lead to higher grocery prices.
RBC believes "ACI/KR will be required to divest somewhere near (or potentially even above) the 650 store limit to receive clearance."
"We believe it will be on ACI/KR to prove that supply chain/distribution efficiencies and increased supplier leverage will actually result in unchanged or even potentially lower consumer prices," the analysts wrote.
The analysts stated in their note previewing Albertsons' upcoming earnings release that they expect the FTC to file a lawsuit recommending the merger be blocked in the coming months.
"Later, we'll get more info on the FTC's view based on the professors the FTC retains to testify as experts (since experts typically remain consistent in their views to avoid contradicting themselves from their prior cases/writing)," the analysts wrote. "Ultimately, we expect an outcome on the deal could take another year (in-line w/ ACI/ KR's expectations) given potential resolution would likely require several buyers, which complicates the situation."
They said RBC's IRI tool points to strong F4Q and F1Q-to-date trends for Albertsons and that the stock's current risk/reward is attractive at current levels.