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.)
Albertsons s lawsuit, filed in Delaware s Court of Chancery, alleges Kroger broke the companies’ merger agreement and failed to adequately address regulators antitrust concerns to gain approval for the planned merger.
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.
Kroger and Albertsons had proposed to sell hundreds of stores made redundant by the merger to C&S Wholesale Grocers, a New Hampshire-based grocery supplier with only limited experience running supermarkets, in a bid to preserve competition and satisfy anti-monopoly regulators.
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.
On Wednesday, the Boise-based grocer claimed that Kroger turned down offers from stronger prospective buyers for the divested stores and refused to cooperate with Albertsons efforts to make the merger viable.
Kroger dismissed Albertsons s allegations as baseless and without merit, and accused Albertsons of repeatedly violating the merger agreement itself during the regulatory process.
Timeline:
Kroger-Albertsons merger
Kroger, the owner of Fred Meyer and QFC, has proposed to buy rival Albertsons, which owns Safeway, for $24.6 billion.
Kroger added that Albertsons’ lawsuit is merely an attempt to avoid responsibility for its own breaches. Kroger said its board is now evaluating next steps.
Laurel Kilgour, a research manager at the American Economic Liberties Project, said Albertsons move amounts to an admission that the divestiture deal was poorly designed.
The fact that Albertsons turned around so quickly and effectively walked away from the merger the very next day after it lost in court strongly suggests that the company was clearly aware that there were fatal problems with the deal, Kilgour said.
Kilgour added that Albertsons may not have a guaranteed win in its legal challenge against Kroger, but it could build a case by arguing that Kroger failed to make a genuine effort to address the problems.
In ending the merger deal, Albertsons asking for a $600 million termination fee it says it was entitled toas part of the merger agreement, as well as compensation for the two years and hundreds of millions it spent in seeking regulatory approval.
Kroger, however, insists that shouldn t have to pay the breakup fee.
Jeffrey Shinder, a founding partner of the New York antitrust firm Shinder Canter Lerner LLP, noted that Albertsons swift decision to terminate the deal and file a lawsuit against Kroger right after the merger fell through in court suggests an unusual level of acrimony between the two companies.
The notion that Kroger wasn t doing everything that it could to get regulatory approvals, including fighting the case in three different courts, is a pretty striking allegation, he said.
Shinder pointed out that both companies entered the merger agreement aware of potential antitrust challenges. While Kroger did try to reduce those risks by offering a divestiture package, its failure to secure regulatory approval doesn t automatically mean Kroger acted in bad faith, he said.
I have a hard time seeing that Albertsons allegations Kroger will be successful. It s a very aggressive move, for sure, he said. To me, this reflects that it s a company in some distress.
Since thedeal was announced in October 2022, Albertsons stock has lost roughly third of its value.
Albertsons, the nation s second-largest supermarket chain, also owns Safeway, while Kroger, the largest, owns Fred Meyer and QFC in the Northwest.
–Kristine de Leoncovers consumer health, retail, small business and data enterprise stories.
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