The two-step comes a day after a federal judge blocked Kroger from acquiring Albertsons on the basis that the merger would eliminate competition, raise grocery prices and harm thousands of workers. The decision was a victory for the Federal Trade Commission and a bipartisan group of nine attorney generals that joined the FTC’s federal court complaint.
Pushback against the merger began within months of Kroger and Albertsons declaring their intentions in October 2022. In November 2022, The US Attorney General in Washington filed a temporary restraining order against the two retailers, which owned and operated a combined 350 grocery stores in Washington State.
The retailers pushed back against anti-competitive concerns by agreeing to sell more than 400 stores and other assets for $1.9 billion to C&S Wholesale Grocers. But Washington AG Bob Ferguson did not agree this was enough to preserve competition and protect consumers and workers. In response, he upped the ante in January 2024 when he sued to block the merger in King County Superior Court. Yesterday, a judge in Washington also ruled in favor of Ferguson to block the merger.
At every turn, Kroger and Albertsons appeared to remain committed to the merger, which they argued was essential to compete against larger omni-channel retailers, including Walmart and Amazon.
Albertsons sues Kroger for ‘self-serving conduct’ that compromised merger
That all changed this morning when Albertsons soured on the arrangement and announced it would exercise its right to terminate the merger with Kroger and sue its competitor for billions of dollars on “breach of contract and breach of the covenant of good faith and fair dealings arising from Kroger’s failure to exercise ‘best efforts’ and to take ‘any and all actions’ to secure regulatory approval” of the merger, Albertsons said in a statement.
“A successful merger between Albertsons and Kroger would have delivered meaningful benefits for America’s consumers, Kroger’s and Albertsons’ associates, and communities across the country. Rather than fulfill its contractual obligations to ensure that the merger succeeded, Kroger acted in its own financial self-interest, repeatedly providing insufficient divestiture proposals that ignored regulators’ concerns. Kroger’s self-serving conduct, taken at the expense of Albertsons and the agreed transaction, has harmed Albertsons’ shareholders, associates and consumers. We are disappointed that the opportunity to realize the significant benefits of the merger has been lost on account of Kroger’s willfully deficient approach to securing regulatory clearance,” Albertsons’ General Counsel and Chief Policy Officer Tom Moriarty said in a statement.
Albertsons argues its shareholders have been denied the multi-billion dollar premium Kroger agreed to pay for its shares in the merger and, thus, deserves a $600 million termination fee. It also seeks additional “relief” for the “years and hundreds of millions of dollars it devoted to obtaining approval for the merger, along with the extended period of unnecessary limbo” due to Kroger’s actions. Finally, it said, it will seek to recover other expenses and costs.
Albertsons reassures shareholders of its ‘strong financial condition’
In announcing the termination, Albertsons’ CEO Vivek Sankaran sought to reassure shareholders of its current financial condition and outlook without a Kroger partnership.
“We start this next chapter in strong financial condition with a track record of positive business performance. Over the last two years, we have invested in our core business and in new sources of revenue, while enhancing our capabilities through the rollout of new technologies. All of this has been built on a rich asset base, including our beloved brands in premium locations with substantial real estate value,” he said in a statement.
He added the retailer will provide additional details on its next steps and value-creating initiatives no later than its upcoming earnings call in January.
Kroger dismisses allegations as ‘baseless’
Kroger dismissed Albertsons’ allegations in a statement as “baseless” and as “an attempt to deflect responsibility following Kroger’s written notification of Albertsons’ multiple breaches of the agreement.”
It argued that it “went to extraordinary lengths to uphold the merger agreement throughout the entirety of the regulatory process and the facts will make that abundantly clear.”
The retailer said it will fight Albertsons in court and that it remains confident in its ability to drive sustainable growth without the merger.