Stock market volatility remained the order of the day on Friday, as major market benchmarks stayed under pressure amid worries about sustained high inflation and the potential for economic headwinds. As of 11 a.m. ET today, the Dow Jones Industrial Average (^DJI -1.24%) was holding up reasonably well, buoyed in part by strong performance by big banks. However, the S&P 500 (^GSPC -1.46%) and Nasdaq Composite (^IXIC -1.62%) were both down more than 1%.

As stock prices have fallen, companies have become increasingly interested in joining forces through mergers and acquisitions. Grocery store retailers Kroger (KR -1.69%) and Albertsons (ACI -1.40%) announced early Friday that they would indeed be looking to merge, confirming reports from earlier in the week. Yet both stocks fell on the news. Below, you'll learn more about what the two grocery companies have in mind and why shareholders seemed less than excited about the prospects for the megamerger.

Unusual moves

The stock price movements on Kroger and Albertsons were unusual in the wake of a merger announcement. It wasn't terribly surprising to see Kroger shares fall 4%, since the acquirer in a merger situation often sees its stock decline. However, the 7% drop in Albertsons stock wasn't consistent with what investors typically see.

The negative reaction came largely from what the final terms of the deal announced Friday looked like in comparison to what investors were speculating on Thursday. Albertsons saw its stock jump more than 11% Thursday as shareholders expected a richer buyout bid to come from Kroger.

Instead, what Kroger offered didn't meet those high expectations. The grocery giant ended up giving Albertsons an enterprise value of $24.6 billion, which implies total compensation of $34.10 per share for current Albertsons investors. That number was well above the $28.63 closing price for Albertsons on Thursday, but shareholders didn't seem to like some of the uncertainties involved with the process.

First, Kroger said that it will reduce that $34.10 figure by the amount of a planned special dividend that Albertsons shareholders will receive, currently estimated at approximately $6.85 per share. That dividend will come in early November.

Perhaps more important, though, Kroger will also reduce its payout to Albertsons shareholders to the extent that Albertsons spins off a portion of its operations in order to obtain regulatory clearance for the merger. Currently, Kroger expects between 100 and 375 Albertsons stores to go into the spinoff, with the idea of creating a competitive entity that could help satisfy any concerns that regulators might have about the anticompetitive effects of the overall merger.

Will the deal go through?

With Albertsons stock now around $26.50 per share, there's a gap of anywhere from 20% to 25% between what Kroger's offer implies and the current stock price. That in turn suggests that investors are dubious that the deal could go through as currently structured.

The primary worry is that the combination of two sizable grocers would create a massive player in the space that could hurt food shoppers when they're already facing pressure from inflation. In addition to their namesake stores, Kroger includes well-known chains like Ralphs and Fred Meyer, while Albertsons also owns the Safeway chain. Already, the two companies are the largest among grocery-centered operators.

Of course, specialized grocers aren't the only companies in the industry anymore. Between superstore operators Walmart (WMT 0.08%) and Target (TGT -3.04%), warehouse club retailers Costco Wholesale (COST -0.14%) and Sam's Club, and online-centered grocery seller Amazon (AMZN -1.54%), it's arguably unfair to apply antitrust rules without considering the competitive impact among every company involved in getting food to consumers -- not just traditional grocers

It'll be interesting to see whether Kroger and Albertsons are able to convince regulators that their strategic move won't adversely affect consumers in this broader context. If they can, then Albertsons stock in particular has a chance to move a lot closer to that $34.10 figure in the weeks and months to come.