Court Ruling Could Bar Lucky-Alpha Beta Deal
State officials and private lawyers won new powers to challenge corporate mergers Monday as the Supreme Court ruled unanimously that California attorneys may seek to split up the merger of the Lucky and Alpha Beta supermarket chains if it will hurt consumers.
If the two were allowed to merge into one powerful supermarket chain, consumers could have faced $200 million-a-year in higher prices for groceries, state attorneys contended. The corporate owners of Alpha Beta have countered that the merger would save consumers $50 million a year.
Although the two chains have continued independent operations, the merger was approved two years ago by the Federal Trade Commission. The following year, a federal appeals court in San Francisco ruled that state officials then had no right to contest the merger.
But under Monday’s 9-0 ruling, state lawyers may go to federal court in Los Angeles and attempt to show that the merger may “lessen competition” in the grocery business. If they can prove that--and most experts think they can--the merger could be dissolved.
“This is a tremendous victory both for California grocery shoppers and for state officials willing to challenge unlawful mergers,” said Atty. Gen. John Van de Kamp, who challenged the merger in a 1988 suit.
American Stores, parent company of Alpha Beta, issued a statement that said “no final determination” has been made showing its acquisition of Lucky violated antitrust laws. The company “intends to vigorously defend its position,” it added. On a broader level, Monday’s decision gives further indication that the “merger mania” of the 1980s has ended.
The collapse of the junk-bond market has made it harder for corporate raiders to raise enough funds to buy other companies. New state laws have made it more difficult for outsiders to take control of a home-state company. And now the Supreme Court has given aggressive state attorneys and other interested parties the power to challenge mergers that violate federal antitrust laws because they might “lessen competition.”
In the 1980s, lawyers for the Ronald Reagan Administration generally smiled upon corporate mergers. The result was an unprecedented wave of mergers, ranging from international airlines to local department stories.
All the while, however, the state attorneys general, most of them Democrats, maintained the more traditional view that fewer competitors would mean higher prices for consumers. But when they tried to aggressively enforce laws against price-fixing and monopolies, they often found themselves blocked by judges who said the old trust-busting laws of the late 19th and early 20th Century must be enforced from Washington, not from the state capitals.
The Clayton Act of 1914 prohibits mergers whose effect “may be substantially to lessen competition or to tend to create a monopoly.” The law said U.S. attorneys had the power to enforce its terms. In addition, it said “any person, firm, corporation or association” could sue for “injunctive relief against threatened loss or damage” because of a violation of the law.
The Alpha Beta and Lucky case--California vs. American Stores, 89-258--turned on the narrow question of whether “injunctive relief” included the right to break up an already completed merger.
Looking at the language and history of the law, the Supreme Court concluded Monday that Congress meant to give broad powers to state or private attorneys not only to prevent planned mergers, but to break up completed ones.
“Even if the merger is a completed violation of the law, the threatened harm to California consumers persists,” wrote Justice John Paul Stevens for the court.
This case began in March, 1988, when American Stores, owners of the 252 Alpha Beta supermarkets in California, sought to buy out the Lucky chain, which had 340 stores in the state. The announcement came as Vons was in the midst of buying out Safeway stores in Southern California.
Fearing that the Lucky-Alpha Beta merger could end real price competition among the major supermarkets, Van de Kamp, who is running in the Democratic primary for governor, expressed opposition to the deal. But under federal law, FTC officials are given first rights to examine a proposed merger.
In June, American bought up all of Lucky’s outstanding stock. On Aug. 31, the FTC announced its approval of the merger. The next day, Van de Kamp filed a suit under the 1914 law in a federal court in Los Angeles.
Shoppers in Southern California may not notice any difference in the Lucky and Alpha Beta stores because, despite the completed merger, U.S. District Judge David V. Kenyon ordered them to operate independently while the suit went forward.
American Stores quickly appealed Kenyon’s ruling that allowed Van de Kamp to pursue a dissolution of the merger, and the 9th Circuit Court of Appeals ruled that only the federal government could break up a completed merger. Judge J. Clifford Wallace said state attorneys had no legal right to challenge the merger once the FTC had approved it.
As the case goes to trial in Los Angeles, state attorneys are encouraged by Judge Kenyon’s finding that state officials had supplied “overwhelming statistical evidence . . . that the merger will substantially lessen competition.”
But American Stores, based in Salt Lake City, contends that the merged chain could operate more efficiently and thereby save consumers money.
The case directly affects only Southern California, since Alpha Beta, which now has 175 stores, does not operate in the northern part of the state. Lucky now has 373 California stores, including 185 in Southern California. Together, Lucky and Alpha Beta would be the largest chain in the southern part of the state.
SETTLEMENT SEEN--Analysts predict that American Stores will seek a settlement with the state. D1
