Kroger: Odd Time for CFO Change as Albertsons Merger Hangs in the Balance

We find it peculiar that Gary Millerchip has resigned from his role as chief financial officer of narrow-moat Kroger, given that this comes amid a proposed merger with no-moat Albertsons and that he was set to maintain his position with the combined company. This could be a signal that the merger will continue to face regulatory hurdles; the Federal Trade Commission has been reviewing it for over a year. We have long held that the merger would face insurmountable regulatory opposition and that Kroger’s effort to divest Albertsons units to C&S Wholesale Grocers would not be enough to push the deal through, as C&S stands to have 600-750 units while the combined Kroger/Albertsons would have a meaningfully larger 4,600-unit footprint. On the other hand, Millerchip’s decision to move on from Kroger could simply be due to having a more attractive opportunity as the new chief financial officer of Costco, which we believe has a relatively stronger competitive advantage, as signaled by our wide moat rating for the warehouse retailer.