A federal judge said he will rule today on a request to block the merger of the Alpha Beta and Lucky supermarket chains--a combination the state claims will cost consumers $400 million annually but the stores contend will save shoppers $50 million.
U.S. District Judge David V. Kenyon listened to more than two hours of legal wrangling Tuesday between attorneys for the two chains and Atty. Gen. John K. Van de Kamp, who is suing to block the $2.5-billion merger on grounds it violates state and federal antitrust laws.
Attorneys for Van de Kamp claimed that the Lucky-Alpha Beta merger would cost California shoppers $400 million a year in higher food bills.
But lawyers for American Stores of Irvine--Alpha Beta's parent company--claimed that the chain, now run by Lucky executives, will provide consumers with $50 million in estimated annual price reductions.
By acquiring the Lucky stores, American Stores will operate a total of 591 supermarkets in California, all under the Lucky name.
Van de Kamp filed the antitrust suit last week, apparently after negotiations with American Stores broke down.
Earlier this year, the attorney general's office opposed the acquisition by Vons of Safeway's Southern California assets, including all of its Southland supermarkets. But Van de Kamp but did not file a lawsuit to block that deal.
Vons, with 183 markets, acquired 172 Safeway stores, plus the company's Southern California warehouses, dairies, bakeries and ice cream plants.
A top official of the attorney general's office said Tuesday that talks with Vons officials aimed at mitigating the "anti-competitive" nature of the deal are progressing, while similar talks with American Stores had not been fruitful.
Among the mitigating measures being discussed with Vons are the divestiture of stores and establishment of guarantees that Safeway directors won't influence Vons directors to refrain from competing with Safeway in Northern California, where Vons now has no presence.
A major issue in the Lucky-Alpha Beta merger is the sheer size of the resulting chain. Divestiture of stores in areas where American Stores would have a virtual monopoly appears to be the attorney general's goal.
At Tuesday's hearing, American Stores lawyer Frank Rothman insisted that the $2.5-billion merger will result in consumer savings, given what he described as Alpha Beta's recent conversion to Lucky's successful price-based marketing strategy.
Management plans to bring Alpha Beta into low-price competition, and any delay in the merger would mean losses to the public, Rothman contended.
"What are we supposed to do? Sit back and say 'You keep your high prices over there and you keep your low prices over there?' " A delay, he said, "does not benefit consumers of this state."
But Chester Horn, deputy state attorney general, alleged that the merger "will substantially lessen competition in all of the relevant markets" in Southern California. The estimate of $400 million in higher food bills was based on research done by two economists, including Robert Harris of the University of California at Berkeley.
Horn was sharply critical of the Federal Trade Commission's approval of the merger. He said the FTC, which approved the deal by a 3-1 vote, underestimated the level of public concern.
"The FTC does not give us all the protection we need," Horn said.
While the impact on consumers may be the ultimate yardstick for judging the merger, the debate Tuesday centered on sometimes arcane elements of legal procedure. To win a short-term order blocking the merger, Horn was required to show that the public would suffer immediate injury and that any delay in issuing such an order would prejudice his case.
For Alpha Beta, Rothman countered that the public would lose price breaks and that the costs of delaying the merger could amount to $1.7 million per week.
Both sides clashed over whether American and Lucky could undo the merger, if ordered.
Horn claimed that until Sept. 28, American, under the FTC order, must maintain separate managements for Lucky and Alpha Beta--a position ridiculed by Rothman.
"The merger is complete. The management has changed. Everything that has to be done has been done or is being done," Rothman said.
Named as a defendant in the lawsuit in federal court in Los Angeles, in addition to American Stores and Lucky, is Alpha Beta Acquisition Corp., a company formed to handle the takeover.
Under the terms of the deal, American will pay $65 a share for Lucky. The merger combines Alpha Beta's 248 California stores with Lucky's 343 supermarkets.
Merger of Competitors
Aside from alleging that two direct competitors will merge, the suit claims that the supermarket industry is already highly concentrated, that barriers exist to entrepreneurs who wish to enter the industry, and that costs of both food and non-food products "might be increased."
FTC approval of the Lucky transaction was conditioned on American's promise to close 37 stores in markets where the effects would be particularly bad on competition, according to FTC spokesperson Susan Ticknor.