Last updated on December 12th, 2024
Albertsons has terminated its merger agreement with The Kroger Co. and filed suit against the grocer for breaching its agreement following a Dec. 10 ruling from the U.S. District Court for the District of Oregon. The court granted the Federal Trade Commission’s request for a preliminary injunction to prevent The Kroger Co. from acquiring Albertsons Companies.
The acquisition would have been the largest supermarket merger in U.S. history, according to a statement from the FTC.
The FTC challenged the $24.6 billion deal alongside a bipartisan group of nine state attorneys general.
Albertsons announced in a Dec. 11 press release it has filed suit against Kroger in the Delaware Court of Chancery, bringing claims of “willful breach of contract and breach of the covenant of good faith and fair dealing arising from Kroger’s failure to exercise ‘best efforts’ and to take ‘any and all actions’ to secure regulatory approval of the companies’ agreed merger transaction” as was required under the merger agreement, according to a statement from Albertsons Cos.
The suit alleges that Kroger willfully breached the merger agreement in several key ways, including by repeatedly refusing to divest assets necessary for antitrust approval, ignoring regulators’ feedback, rejecting stronger divestiture buyers and failing to cooperate with Albertsons, according to the 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,” said Tom Moriarty, Albertsons’ general counsel and chief policy officer.
“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.
“We are taking this action to enforce and preserve Albertsons’ rights and to protect the interests of our shareholders, associates and consumers. We believe strongly in the merits of our case and look forward to presenting it to the court to hold Kroger responsible for the harm it has caused,” Moriarty said.
Albertsons stated its claims against Kroger are confirmed by the recent rulings from the United States District Court for the District of Oregon and the King County Superior Court for the state of Washington, which granted regulators’ requests to block the merger. Those results could have been avoided but for Kroger’s breaching conduct, the company stated.
[RELATED: Kroger, Albertsons To Merge In $24.6B Agreement]
Albertsons Cos. stated it is seeking billions of dollars in damages from Kroger to make Albertsons and its shareholders whole.
“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 also seeks to recover for the time, energy and resources it invested in good faith to try to make the merger a success,” the company stated.
As a result of the courts’ rulings, Albertsons Cos. notified Kroger of its decision to terminate the merger agreement.
“Given the recent federal and state court decisions to block our proposed merger with Kroger, we have made the difficult decision to terminate the merger agreement. We are deeply disappointed in the courts’ decisions,” Albertsons’ CEO Vivek Sankaran said in a statement released Dec. 11.
“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.
“These assets provide us the opportunity to optimize the acceleration of our Customers for Life strategy and other value-creating initiatives. We are excited about our agenda to create long-term value and are committed to returning cash to our stockholders both in the near term and in the future. We will be providing additional details on our plan no later than our earnings conference call in January 2025.”
[RELATED: Kroger, Albertsons Share Updated Divestiture Plan With C&S]
According to a company statement, the termination entitles Albertsons to an immediate $600 million termination fee and removes contractual constraints on Albertsons’ ability to pursue other strategic opportunities. In addition to the $600 million termination fee, Albertsons is entitled to relief reflecting the multiple years and hundreds of millions of dollars it devoted to obtaining approval for the merger, along with the extended period of unnecessary limbo Albertsons endured as a result of Kroger’s actions. Albertsons further seeks to recover certain expenses and costs,” the company stated.
Kroger shared a statement in response to Albertsons’ release, stating that it “refutes these allegations in the strongest possible terms, especially in light of Albertsons’ repeated intentional material breaches and interference throughout the merger process, which we will prove in court.
“This is clearly an attempt to deflect responsibility following Kroger’s written notification of Albertsons’ multiple breaches of the agreement, and to seek payment of the merger’s break fee, to which they are not entitled. Kroger looks forward to responding to these baseless claims in court. 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.”
Finally, the Kroger Board of Directors shared that they are evaluating next steps “that serve the best interests of Kroger’s customers and associates, and create value for shareholders.”
On Dec. 10, FTC Bureau of Competition Director Henry Liu issued a statement on the ruling.
“The FTC, along with our state partners, scored a major victory for the American people, successfully blocking Kroger’s acquisition of Albertsons.
“This historic win protects millions of Americans across the country from higher prices for essential groceries – from milk, to bread, to eggs – ultimately allowing consumers to keep more money in their pockets. This victory has a direct, tangible impact on the lives of millions of Americans who shop at Kroger or Albertsons-owned grocery stores for their everyday needs, whether that’s a Fry’s in Arizona, a Vons in Southern California, or a Jewel-Osco in Illinois.
“This is also a victory for thousands of hardworking union employees, protecting their hard-earned paychecks by ensuring Kroger and Albertsons continue to compete for workers through higher wages, better benefits, and improved working conditions,” Liu stated.
Additionally, National Grocers Association (NGA) President and CEO Greg Ferrara issued a statement, following the news of the failed merger.
“Today, 69 percent of all grocery sales are controlled by four nationwide chains. Growth and consolidation once aimed at efficiency are now primarily motivated by amassing raw buyer power used to strong-arm product suppliers while undermining smaller competitors. This marketplace trend was at the core of the failed merger between Kroger and Albertsons,” Ferrara shared.
“Grocery consolidation stems from decades of FTC failure to enforce critical antitrust laws like the Robinson-Patman Act, which was designed to protect consumers and foster competition by preventing economic discrimination against independent grocers. Without enforcement, dominant chains abuse their power to coerce preferential pricing and terms of trade from suppliers and agriculture producers. As a result, suppliers are forced to offset these losses by charging higher prices to independent grocers – even when independents buy in similar volumes.
“Main Street America has been decimated over the years, losing locally owned grocery stores, pharmacies and hardware stores. Antitrust laws provide important guardrails to help keep markets free and open, but when enforcers fail to do their jobs, the system breaks down and our communities suffer. Now, it is time for Congress and the FTC to enforce and strengthen antitrust protections to ensure a fair marketplace for independent grocers and their customers.”
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