Dive Brief:
- Albertsons announced Wednesday it is terminating its merger agreement with Kroger and suing the grocer for allegedly breaching the merger contract between the two companies. The lawsuit comes one day after a federal judge and a state judge separately blocked the proposed mega-merger.
- Albertsons claims Kroger did not offer an adequate divestiture package, “repeatedly ignored regulators’ concerns” and failed to cooperate with Albertsons, which led to two courts halting the deal. Albertsons said it is seeking “billions of dollars in damages” from Kroger to make Albertsons and its shareholders whole.
- In a Wednesday statement, Kroger dismissed Albertsons’ claims as “baseless and without merit,” adding that its former merger partner had violated the companies’ agreement on multiple occasions since the deal was announced in 2022.
Dive Insight:
Kroger had agreed to pay Albertsons a $600 million termination fee if the merger didn’t go through. Now, Albertsons says it is entitled to that fee and much more.
“Albertsons’ shareholders have been denied the multi-billion-dollar premium that Kroger agreed to pay for Albertsons’ shares and have been subjected to a decrease in shareholder value on account of Albertsons’ inability to pursue other business opportunities as it sought approval for the transaction,” Albertsons’ announcement stated. “Albertsons also seeks to recover for the time, energy and resources it invested in good faith to try to make the merger a success.”
Albertsons claims Kroger violated the grocers’ merger agreement in several ways, including ignoring feedback from regulators, refusing to entertain alternative choices for store divestitures, not divesting enough assets and failing to cooperate with Albertsons during the process.
“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,” Tom Moriarty, Albertsons’ general counsel and chief policy officer, said in a statement. “Kroger’s self-serving conduct, taken at the expense of Albertsons and the agreed transaction, has harmed Albertsons’ shareholders, associates and consumers.”
The lawsuit is a stunning turn in the merger saga that has gripped the industry and now pits the nation’s two largest supermarket chains against each other after spending more than two years trying to combine.
In court, lawyers for Albertsons said the grocer faces an uncertain future because it won’t be able to compete with large retailers like Walmart, Amazon and Costco, and could eventually have to close stores or look for other merger opportunities. Albertsons’ termination of its deal with Kroger removes contractual constraints on Albertsons’ ability to look at “other strategic opportunities,” Albertsons said in the announcement.
With the grocers’ merger deal now terminated, the spotlight shifts to a different legal battle — the one between Kroger and Albertsons.
Kroger punched back at Albertsons’ claims and also said in the statement it believes Albertsons is not entitled to the termination fee.
“We went to extraordinary lengths to uphold the merger agreement throughout the entirety of the regulatory process and the facts will make that abundantly clear,” Kroger said in the statement.
Kroger also contended that it handled its end of the deal with Albertsons properly.
“We are incredibly proud of the Kroger team for how they worked through the merger process with the highest degree of integrity and commitment,” the company said. “We are confident in Kroger’s value creation model to drive sustainable growth.”
Beyond assigning blame to each other for the disintegration of their merger, Kroger and Albertsons will now have to plot their courses independently as they look to contend with the rough-and-tumble grocery market dynamics that brought them together in the first place.
“It’s hard not to think that they’re strategically worse off over the next … five years than they would have been had they merged,” R5 Capital CEO Scott Mushkin said about Kroger in an interview Tuesday, before Albertsons announced its lawsuit. “They wanted to do the merger because they saw a lot of strategic value in getting bigger — and that’s not going to happen anymore.
Sam Silverstein contributed reporting
