Kroger Co. is in talks about a tie-up with rival Albertsons Cos. in a deal that would create a U.S. grocery giant, people familiar with the matter said.

The retailers could reach an agreement as soon as this week, the people said. They asked not to be identified discussing confidential information. No final decisions have been made and talks could still be delayed or falter, according to the people.

The exact structure and price of the deal was not immediately available. Any potential transaction, if agreed, may face antitrust scrutiny.

Representatives for Albertsons (No. 26 in the 2021 Digital Commerce 360 Top 1000) and Kroger (No. 8) couldn’t immediately be reached for comment.

Albertsons studying options

Boise, Idaho-based Albertsons has been studying options to boost growth. It has seen sales gains during the COVID-19 pandemic cool. At the same time, labor and logistics expenses have been rising.

Albertsons announced in February it would conduct a strategic review of its businesses. Albertsons includes the Acme, Tom Thumb and Shaw’s chains as well as its eponymous stores, that raised the prospect of potential disposals to help create value for shareholders.

Cerberus Capital Management still owns almost 30%of Albertsons. The New York private equity firm first invested in the retailer in 2006. Albertsons emerged from Cerberus’s portfolio when it held an initial public offering in 2020.

Cincinnati, Ohio-based Kroger, meanwhile, grew less sharply than Albertsons through the coronavirus pandemic. But Kroger held on to more of its gains.

A Kroger and Albertsons tie-up would face scrutiny

A potential tie-up would give the combined entity increased purchasing power, a sprawling shopper-loyalty program and greater heft in technology investments as online grocery sales increase. The resulting giant would be of comparable size in groceries to Walmart Inc. (No. 2), the U.S. market leader.

But any deal would face tough scrutiny from U.S. antitrust authorities, said Jennifer Bartashus, an analyst at Bloomberg Intelligence. The U.S. Federal Trade Commission is already subjecting mergers to close examination. And a Kroger-Albertsons deal would join two large players that directly compete in much of the country.

“This is the type of transaction that really looks good on paper, but the actual practicality of achieving regulatory approval by the FTC could be difficult,” Bartashus said. “If you think about the store bases of the two respective entities, there is a lot of overlap in very competitive markets.”

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