Albertsons abandoned its planned $24.6 billion sale to Kroger after being blocked by federal and state judges, and it filed a lawsuit against its potential merger partner.
The complaint was filed on Wednesday, one day after the agreement was rejected by a state court judge in Washington and a federal judge in Oregon.
Albertsons is now in a tough situation after relying on the merger and claiming it was too tiny to compete alone.
Vivek Sankarans, the CEO of Albertsons, said in a statement, “We have made the difficult decision to terminate the merger agreement given the recent federal and state court decisions to block our proposed merger with Kroger.” We are quite dissatisfied with the court’s rulings.
Albertson’s lawyers presented the chain as floundering in the face of intense competition in the retail industry during the court hearing in Portland, and they contended that the company’s long-term survival depended on its merger with Kroger.
Sankaran and other Albertsons officials testified that the company may have to liquidate locations or make other drastic cost reductions in order to remain in business in the future if a merger is not possible. (If the deal had gone through, Sankaran would have received a $43 million severance package.)
Kroger allegedly violated the firms’ merger agreement and neglected to sufficiently address regulators’ antitrust concerns in order to obtain clearance for the proposed combination, according to Albertsons’ case, which was filed in Delaware’s Court of Chancery.
The grocery store chain from Boise said that it was suing Kroger for billions of dollars in damages to make up for the harm done to its customers, workers, and shareholders.
Albertsons’ general counsel and chief policy officer, Tim Moriarty, accused Kroger in a statement of operating in its own financial self-interest by consistently offering inadequate divestment offers that disregarded regulators’ concerns.
In an effort to maintain competition and appease anti-monopoly regulators, Kroger and Albertsons had suggested selling hundreds of shops that were eliminated by the merger to C&S Wholesale Grocers, a food supplier based in New Hampshire with little experience operating supermarkets.
However, at the federal hearing, FTC attorneys questioned whether C&S, which now only directly runs 25 retail sites, has the experience necessary to acquire roughly 600 stores through the divestment agreement and effectively compete with a Kroger and Albertsons combined.
The form of the divestment package… presents significant risks for C&S that could make it impossible to compete, according to U.S. District Judge Adrienne Nelson, who heard the case and decided to temporarily halt the merger on Tuesday. She supported the FTC, pointing out that C&S had a poor track record in prior supermarket endeavors and lacked the size and expertise to compete against a combined Kroger and Albertsons.
The Boise-based supermarket chain said on Wednesday that Kroger refused to work with Albertsons’ attempts to make the merger work and rejected proposals from more powerful potential buyers for the sold shops.
During the regulatory process, Kroger accused Albertsons of frequently breaking the terms of the merger agreement and rejected his claims as unfounded and without basis.
Timeline:
Kroger-Albertsons merger
The owner of Fred Meyer and QFC, Kroger, has offered to pay $24.6 billion to acquire Safeway’s rival, Albertsons.
Albertsons’ complaint, Kroger continued, is just an effort to escape accountability for its own violations. According to Kroger, the board is currently considering what to do next.
Albertson’s action, according to Laurel Kilgour, research manager at the American Economic Liberties Project, is equivalent to acknowledging that the divestment agreement was badly drafted.
Albertsons’ swift and decisive decision to abandon the merger the day after it lost in court, according to Kilgour, “strongly suggests that the company was clearly aware that there were fatal problems with the deal.”
Kilgour went on to say that although Albertsons’ legal suit against Kroger may not be successful, it might strengthen its case by claiming that Kroger did not genuinely attempt to resolve the issues.
Albertsons is requesting a $600 million termination fee, which it claims it was entitled to under the terms of the merger agreement, as well as reimbursement for the two years and hundreds of millions of dollars it spent pursuing regulatory approval.
However, Kroger maintains that the separation fee shouldn’t be imposed.
According to Jeffrey Shinder, a founding member of the antitrust firm Shinder Canter Lerner LLP in New York, Albertson’s prompt determination to end the agreement and sue Kroger immediately after the merger failed in court points to an exceptional degree of animosity between the two businesses.
“It’s a pretty striking allegation that Kroger wasn’t doing everything it could to get regulatory approvals, including fighting the case in three different courts,” he added.
Shinder noted that both businesses were aware of possible antitrust issues when they signed the merger deal. He noted that although Kroger made an effort to lower those risks by providing a divestiture package, the company’s inability to obtain regulatory permission does not necessarily imply that it acted dishonestly.
I don’t think Albertson’s accusations against Kroger will hold water. “It’s definitely a very aggressive move,” he remarked. This suggests to me that the business is experiencing some difficulties.
Albertsons’ shares has lost around a third of its value since the acquisition was announced in October 2022.
Safeway is owned by Albertsons, the country’s second-biggest supermarket chain, while Kroger, the biggest, owns QFC and Fred Meyer in the Northwest.
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