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UPDATE 2-Kroger strikes $25 billion deal for Albertsons to create supermarket titan

(Add details from release, background)

Oct 14 (Reuters) - U.S. grocer Kroger Co said on Friday it will buy smaller rival Albertsons Companies Inc in a $24.6 billion deal that would create a supermarket behemoth to take on leader Walmart Inc.

Kroger will pay $34.10 for each Albertsons share, representing a premium of about 33% to the stock's closing price on Wednesday, a day before media reports emerged of a deal between the two.

The merger would bring together more than 2,700 Kroger stores across the United States and over 2,200 Albertsons locations.

The deal between the top two retail chains would give them an edge over negotiations on product prices with suppliers including consumer goods companies, at a time when prices of groceries and essentials are soaring in the country.

Kroger said it expects to reinvest about half a billion dollars of cost savings from deal synergies to reduce prices for customers. An incremental $1.3 billion will also be invested into Albertsons.

Kroger is the second-largest U.S. grocer by market share, trailing behind retailer Walmart, with Albertsons taking the third spot, according to Euromonitor data.

The deal comes at a time when Walmart has doubled down on its own grocery business amid soaring inflation. The company has traditionally used its scale to demand the lowest possible prices from food and beverage suppliers, leaving rivals at a disadvantage in price negotiations.

The mega merger between the nation's No. 1 and 2 standalone grocers could, however, draw plenty of regulatory scrutiny, with some critics noting it would stifle competition among U.S. grocery chains and potentially lead to higher prices for American shoppers. (Reporting by Deborah Sophia in Bengaluru; Editing by Devika Syamnath)