UPDATE 5-Kroger, Albertsons to sell 166 more stores seeking approval of $25 billion merger

(Adds FTC comment in paragraph 8; updates Kroger stock movement in paragraph 13)

By Siddharth Cavale

April 22 (Reuters) - Kroger and Albertsons Cos are expanding their planned sale of grocery stores, offloading 166 more locations than previously agreed upon to C&S Wholesale Grocers as they work to get regulatory approval for their proposed $25 billion merger, the companies said on Monday.

The companies have been looking to sell stores to address regulators' increasing concerns that the merger will lead to higher prices, store closures and job losses.

Under the new agreement, C&S will pay Kroger about $2.9 billion in cash for the stores, up from the previous payout of $1.9 billion.

With the additional 166 stores, the companies are now selling 579 stores to C&S, as well as giving it access to Albertsons Signature and O Organics private label brands.

Kroger announced that it was buying Albertsons in October 2022. In February this year, the U.S. Federal Trade Commission (FTC) and eight states sued to block the deal, saying it would raise grocery prices for millions of Americans.

The FTC has also generally been reticent to accept divestitures as a solution, said Maureen Ohlhausen, who headed the FTC from 2012 to 2018, in a webinar last week.

A district court in Oregon has set an August date for a hearing on the FTC's bid for a preliminary injunction to block the deal, which would strengthen Kroger's position as the second-largest player in the U.S. grocery market behind Walmart .

The FTC declined to comment on Kroger's expanded divestiture package.

Steven Shemesh, RBC Capital Markets analyst, said that one of the primary arguments against the original sales package was that C&S does not have meaningful operational experience and that they have a history of flipping retail assets.

"In our view, more stores does not change that argument much," he said.

Tom Geiger, spokesperson for UFCW 3000, which represents Kroger and Albertsons employees in Washington, Oregon, and Idaho, said that union members are concerned that C&S might resort to selling the real estate of stores if it lacks the necessary IT infrastructure, customer loyalty, and manufacturing capabilities.

Legal advisers close to the transaction and the divestiture deal, however, said Kroger and Albertsons are trying to provide C&S with a business that it can run effectively by increasing distribution capacity that will create a density of local store networks to support its business.

Kroger's shares ended Monday up about 1 percent. (Reporting by Ananya Mariam Rajesh and Juveria Tabassum in Bengaluru; Editing by Anil D'Silva, Tasim Zahid and Michael Erman)