$24.6 billion mega deal rocked by Colorado AG’s claim supermarkets colluded not to hire each other’s workers

Kroger CEO Rodney McMullen.

Kroger’s $24.6 billion acquisition of competing grocery chain Albertsons could be in jeopardy after two challenges by state attorneys general—and a claim by Colorado’s top lawyer that the companies colluded to hurt workers and protect their bottom line.

Last week, Colorado state attorney general Phil Weiser sued to block the merger of two of the country’s biggest grocery chains, claiming that the deal would “lead to higher prices, worse service, lower quality, and reduced choice for consumers.” Weiser claimed that the deal would give the combined entity control over more than half of the state’s supermarket industry and in turn harm suppliers, workers, and “weaken the state’s supply chain resiliency,” according to the lawsuit.

The lawsuit also accused the two companies of an illegal “no-poach” agreement, in which they agreed not to hire each other’s workers while they were on strike. During a 2022 strike, which included employees at 78 stores owned by Kroger subsidiary King Soopers, the two companies reached a deal in which Albertsons would not hire striking workers and would not solicit Kroger’s pharmacy customers, according to the lawsuit.

Albertsons’ senior vice president of labor relations, communicated the agreement in an email to his counterpart at Kroger, saying, “we don’t intend to hire any King Soupers [sic] employees and we have already advised the Safeway division of our decision and the division agrees,” according to an email quoted in the lawsuit. The president of Albertsons’ Denver division, Todd Broderick later confirmed that the agreement existed in testimony provided to the FTC, Weiser’s office wrote in the suit.

“ACI (Albertsons) and Kroger restrained the ability of Kroger’s striking union employees to find alternative employment and leave Kroger, which strengthened Kroger’s ability to resist union demands at the negotiating table,” the lawsuit read.

The Biden Administration has been increasingly critical of no-poach agreements, which worker advocates say hold down wages and unfairly restrict workers’ freedom of choice, and the Department of Justice has brought three criminal cases against companies for no-poach activity.

Kroger and Albertsons claimed in a joint statement that they were “disappointed” in Weiser’s lawsuit and added that the merger would lower prices and give customers more options.

“Blocking this merger would only serve to strengthen larger, non-unionized retailers like Walmart, Costco and Amazon, by allowing them to maintain and increase their overwhelming and growing dominance of the grocery industry,” the companies said in the statement.

The lawsuit by Colorado’s state attorney general comes after Washington’s state attorney general Bob Ferguson filed a similar lawsuit to block the merger last month. The FTC may also sue to block the deal, Bloomberg reported Tuesday, citing people familiar with the plans.

Regardless of what happens with the merger, Colorado’s Weiser is looking to fine each of the companies $1 million for their alleged illegal activities.

While those fines are relatively small, if Weiser’s lawsuit succeeds, it could cause the companies headaches in the future, wrote Matt Stoller, the director of research for the American Economic Liberties Project, a nonprofit that advocates for robust antitrust enforcement.

If Weiser’s office can convince a judge that the two companies did collude, it could open Kroger and Albertsons up to future class action lawsuits.

Stoller added that Kroger and Albertsons will have to clear both state lawsuits, along with the reportedly impending FTC lawsuit, in order to ultimately close the deal.

For their part, the grocery companies have sought to lessen regulators’ concerns that the deal could be bad for consumers in part by promising to incrementally commit billions of dollars to lowering prices and increasing wages.

Still, some market onlookers are doubtful that the deal will go through. Last month, prior to Colorado’s lawsuit, Washington D.C.-based research firm Washington Analysis gave the merger just a 35% chance of succeeding.

This story was originally featured on Fortune.com