InvestMacro

By Christine P. Bartholomew, University at Buffalo 

Albertsons announced on Dec. 11, 2024, that it had called off an attempted merger with Kroger and would sue Kroger for breach of contract. The US$25 billion deal, first announced in 2022, would have combined Cincinnati-based Kroger, already the largest traditional U.S. supermarket chain, with Boise, Idaho-based Albertsons, which is currently the third-biggest grocer.

The Conversation U.S. asked Christine P. Bartholomew, a professor at the University at Buffalo School of Law who researches consumer protection, to explain how the merger failed and why it matters.

Which supermarkets belong to the two companies?

Kroger has 28 subsidiaries with nearly 2,800 supermarkets, including Harris Teeter, Dillon’s, Smith’s, King Soopers, Fry’s, City Market, Owen’s, JayC, Pay Less, Baker’s Gerbes, Pick‘n Save, Metro Market, Mariano’s Fresh Market, QFC, Ralphs and Fred Meyer.

Albertsons owns and operates more than 2,200 supermarkets through its many brands. They include Safeway, Vons, Jewel-Osco, Shaw’s, Acme, Tom Thumb, Randalls, United Supermarkets, Pavilions, Star Market, Haggen, Carrs, Kings Food Market and Balducci’s.

Kroger and Albertsons also operate supermarkets branded with their own names.

Had the merger gone forward, it would have been the largest of its kind in U.S. history, affecting millions of grocery shoppers.

To ward off regulators’ concerns, prior to canceling the transaction, the chains announced in 2023 a plan to sell hundreds of their supermarkets across the United States to C&S Wholesale Grocers. They updated this plan in 2024, pledging to not close any stores.

Why did Kroger want to acquire Albertsons?

The companies argued that they needed to join forces to compete against even bigger online and big box retailers. In recent years, Walmart and Costco have gained market share, while other chains have held steady or lost ground.

The companies also feared stiff competition from dollar stores, one of the fastest-growing segments of U.S. retail.

The federal government opposed the merger, with the U.S. Federal Trade Commission suing to block it. Had the deal gone through, the new company would have cemented its position, ensuring it has the largest market share for grocery purchases after Walmart.

What happened in court?

In February 2024, the FTC, along with state attorneys general representing consumers in eight states – Arizona, California, Illinois, Maryland, Nevada, New Mexico, Oregon and Wyoming – filed a federal lawsuit in Oregon to block the merger. So did the District of Columbia’s attorney general.

This wasn’t the only legal challenge the merger faced. The Washington and Colorado attorneys general both filed suit in their own states to block the merger.

After hearings in both cases and months of uncertainty, the judges in both Oregon and Washington issued their rulings.

U.S. District Court Judge Adrienne Nelson, in Portland, Oregon, on Dec. 10, which blocked the merger pending the outcome of the administrative proceedings before the FTC.

A few hours later, Judge Marshall Ferguson in Seattle issued a permanent injunction barring the merger in Washington state only. Both judges determined that the merger risked significantly reducing competition and that the companies didn’t offer enough evidence that the merger would help consumers.

“We’re standing up to mega-monopolies to keep prices down,” Ferguson said. He called the injunction “an important victory for affordability, worker protections and the rule of law.”

Albertsons and Kroger’s plan to offload stores to C&S didn’t impress the judges. Not only did Nelson find the divestiture insufficient in scale, but she ruled it was “structured in a way that will significantly disadvantage C&S as a competitor.”

Albertsons v. Kroger

The morning after the Washington and Oregon decisions were issued, the deal was dead.

Albertsons announced it terminated the merger agreement, citing the court decisions.

Both companies still face significant legal challenges, though. Five minutes after announcing its intent to back out of the deal, Albertsons issued a second press release announcing it had filed a lawsuit against Kroger.

Albertsons said Kroger willfully breached the deal “by repeatedly refusing to divest assets necessary for antitrust approval, ignoring regulators’ feedback, rejecting stronger divestiture buyers and failing to cooperate with Albertsons.” The suit seeks significant damages, including “billions of dollars” for lost shareholder value and legal costs, as well as a $600 million merger breakup fee.

In response, Kroger said that “Albertsons’ claims are baseless and without merit.”

Albertsons’ suit against Kroger is pending in Delaware Court of Chancery, which hears many legal business disputes. The complaint remains temporarily under seal.

This article includes passages that appeared in an article about the proposed merger that was published on Feb. 28, 2024.

About the Author:

Christine P. Bartholomew, Professor of Law, University at Buffalo

This article is republished from The Conversation under a Creative Commons license. Read the original article.

By Brian Mittendorf, The Ohio State University 

Donor-advised funds, or DAFs, are financial accounts funded by donors to support future charitable work. This kind of giving differs greatly from charitable giving as a whole because it’s much more likely to involve donations of assets like stock, real estate or cryptocurrencies that have gained in value.

That’s what my co-author, Helen Flannery and I, found in our new study that will soon be published in “Nonprofit Operations and Supply Chain Management” as part of an academic book series.

We examined the IRS filings of all charities from 2020 to 2022, including organizations that administer DAFs. Such DAF sponsors include charities affiliated with large financial companies like Vanguard, Schwab and Fidelity. By looking at the types of gifts received by these charities, we found that noncash giving represents more than 16% of the average DAF’s revenue versus only about 3% on average for overall charitable giving, which covers everything from animal shelters to orchestras.

This difference is even more pronounced for the largest national DAF operations, which on average had 46% of their incoming assets in noncash form.

These noncash gifts were primarily investment assets like stocks, bonds and real estate. We find that while the average conventional charity gets around 33% of its noncash contributions as investments, the average DAF sponsor gets more than 90% of its noncash donations that way.

This share is even higher, at over 97%, for the typical national DAF organization.

Why it matters

DAFs, first launched in the 1930s, have become much more widespread over the past three decades.

The total value of assets they hold is rising fast: It grew from US$70 billion in 2014 to more than $251 billion in 2023.

In some ways, DAFs operate like small foundations, since donors can get a tax break when they put money into a DAF, even if that money isn’t put into use by a charity for years. Donors also retain advisory control over the money they’ve reserved for future charitable giving.

But unlike foundations, there’s very little paperwork required, and there’s no requirement that a DAF disburse at least 5% of its assets annually – like foundations have to do.

Using investment assets as charitable donations is more advantageous to donors than just putting money in a DAF. One reason is that most large donors are eligible for a tax deduction equal to the full value of the asset that was donated at the time of the gift. That holds true, even if the value has risen significantly from what it initially was worth when the donor acquired it. The second reason is that donors don’t need to pay taxes on their capital gains as they would have had they sold it and obtained money in exchange.

Likewise, this boom in gifting investment assets can cut into government tax revenue more than typical cash gifts because it more effectively reduces an investor’s tax obligations.

Policymakers, lawmakers and regulators are currently considering whether to establish new rules for DAFs.

What’s next

We are now researching how the charities that administer DAFs differ from one another. We’re finding that some primarily market themselves as a way for donors to reduce their tax payments, while others put more emphasis on helping donors better manage their charitable giving.

The Research Brief is a short take about interesting academic work.

About the Author:

Brian Mittendorf, Professor of Accounting, The Ohio State University

This article is republished from The Conversation under a Creative Commons license. Read the original article.

By L. Beril Toktay, Georgia Institute of Technology; Abhinav Shubham, Georgia Institute of Technology; Donghyun (Daniel) Choi, Georgia Institute of Technology, and Manpreet S. Hora, Georgia Institute of Technology

Companies around the world are increasingly committed to cutting their greenhouse gas emissions to slow and ultimately reverse climate change.

One indicator is the number of companies that have set emissions targets as part of the Science Based Targets initiative, or SBTi, a global nonprofit organization. That number grew from 164 companies in late 2018 to over 6,600 by November 2024. And thousands more have committed to lower their emissions.

It’s not always a smooth road, however. Some of those companies – including big names like Microsoft and Walmart – have had to pull back on some of their SBTi commitments.

We study the history of SBTi pledges to understand these commitments and what can undermine them. We believe there is more to the story of these pullbacks than meets the eye.

What is net zero?

To understand corporate climate commitments, let’s start with the concept of “net zero.”

The Paris Agreement, an international treaty on climate change, aims to limit global warming to well below 2 degrees Celsius (3.6 Fahrenheit) and ideally to 1.5 C (2.7 F). Meeting the more ambitious target of 1.5 C will require reaching net-zero greenhouse gas emissions by around 2050.

Net zero is the point at which the amount of greenhouse gases released into the atmosphere is balanced by greenhouse gases removed, either through natural sources like forests or technologies such as carbon capture and storage.

The Science Based Targets initiative, developed alongside the Paris Agreement in 2015, provides a framework to help companies align their efforts with the 1.5 C goal.

SBTi commitments have grown quickly

To join the initiative, companies begin by signing a letter of commitment to set near-term (2030) and long-term (2050) targets for reducing their emissions. Companies have 24 months to develop targets that adhere to SBTi guidelines. If the targets are validated and approved by SBTi, the company announces its targets publicly. The targets must be revalidated every five years, or they expire.

The number of global companies committing to and setting targets with SBTi has grown rapidly in recent years.

By the end of 2023, 7,929 companies representing 39% of global market capitalization had committed to set targets, and 4,205 had targets already validated by SBTi. By November 2024, that number had grown to 6,614.

This impressive participation is particularly significant given SBTi’s high expectations. SBTi requires near-term targets to be set so companies reduce emissions by at least 42% by 2030 from 2020 levels.

Why some companies have pulled back

So, why are companies like, Walmart, Microsoft and Amazon scaling back their commitments with SBTi?

While some people attribute these moves to political pressure from fossil fuel supporters, a closer look at data since 2013 reveals a more complex set of factors that may better explain their actions.

We found that, over the past decade, 695 companies either withdrew near- or long-term commitments or had a commitment that expired and was terminated by SBTi. These actions were concentrated in two distinct periods.

The first period followed SBTi’s decision in April 2019 to update its criteria, including tightening the minimum target from under 2 C to either “well below 2 C” or 1.5 C. We believe several companies were unprepared to meet the new requirements. Among the 500 companies that had either committed to or set a target by the end of 2018, 94 (18.8%) terminated their initial commitments after the criteria changed.

The second period was after January 2023, when SBTi introduced a new compliance policy and began removing commitments that had expired. In this period, 531 commitments were terminated – 497 of them because the commitment expired, and 16 because the company withdrew.

It’s important to recognize that SBTi strategically raised the bar to encourage companies to accelerate their progress in addressing climate change.

Reasons some companies have struggled

In a report in March 2024, SBTi provided a candid look at companies’ climate commitments from 2019 to 2021 and, importantly, where they struggled.

Approximately half of the companies that responded to its survey identified the complexity of addressing Scope 3 emissions – emissions from a company’s supply chain and use of its products – as a primary obstacle to setting net-zero targets. The supply chain is often considered a blind spot for measuring environmental impact and is difficult for companies to control.

On the day the report was released, SBTi removed the long-term commitments of 239 companies. About 60% of those companies had near-term targets that remained.

This helps explain the news around companies such as Walmart, Microsoft and Amazon.

Walmart’s and Microsoft’s long-term net-zero commitments were terminated, though both companies still have valid near-term targets with SBTi.

Moreover, both reaffirm their environmental commitments in their annual reports. Walmart is currently finalizing its Scope 3 emissions analysis to inform future strategy development, and Microsoft is investing in carbon removal technologies to become carbon-negative by 2030.

Amazon presents a more challenging case. The company may have faced difficulty meeting SBTi’s stringent mandate, particularly around supply chain emissions. Amazon has said it is still committed to reaching net-zero emissions and plans to explore setting targets with other organizations.

Many companies are on track

Our analysis of SBTi’s progress data, which includes all companies that had set a target by 2022 for which SBTi has emissions data, reveals that companies are cutting their emissions by a median annual rate of 5.4%.

Looking just at direct emissions from companies’ operations (Scope 1) and their purchased electricity (Scope 2), companies did even better. The median annual emissions decrease was 7.25% for companies with both Scope 1 and Scope 2 targets.

Scope 2 emissions are the low-hanging fruit and frequently align with cost-saving measures like improving energy efficiency.

Scope 3 emissions, those generated by companies’ suppliers and by consumer use of their products, are the biggest challenge. Companies with a separate Scope 3 target only reduced those emissions by a median annual rate of about 3%.

In 2024, SBTi announced plans to revise its Net-Zero Standard and allow companies to use carbon offsets to meet their Scope 3 emissions targets, drawing intense criticism. Carbon offsets allow companies to pay projects to reduce emissions on their behalf, such as by planting trees or managing forests.

SBTi’s challenge lies in finding a balance that maintains the integrity of its standards while encouraging broader participation, especially from high-impact industries.

Other ways companies are reducing emissions

While setting and achieving SBTi targets signals a strong commitment to combating climate change, many companies are setting emissions goals and working toward them without joining SBTi.

An example is the Drawdown Georgia Business Compact. It was created to accelerate the adoption of 20 technology- and market-ready solutions and includes nearly 70 companies, from multinationals headquartered in Georgia like Delta and UPS to small- and medium-size enterprises operating in the state.

Through the compact, companies are advancing initiatives with local economic benefits. For example, they are exploring ways to maximize Georgia forests’ ability to remove carbon and discussing effective ways to deploy sustainable aviation fuels.

The road to net-zero emissions will be bumpy. Yet the rapid growth of global corporate commitments, as well as action by a wider range of companies at the regional level, suggests corporate efforts are nevertheless moving forward.

About the Authors:

L. Beril Toktay, Professor of Operations Management, Georgia Institute of Technology; Abhinav Shubham, Ph.D. Candidate in Operations Management, Georgia Institute of Technology; Donghyun (Daniel) Choi, Ph.D. Candidate in Operations Management, Georgia Institute of Technology, and Manpreet S. Hora, Professor of Operations Management, Georgia Institute of Technology

This article is republished from The Conversation under a Creative Commons license. Read the original article.