Albertsons terminates merger with Kroger after U.S. district court blocks acquisition

Albertsons is seeking billions of dollars in damages from Kroger to make Albertsons and its shareholders whole.

12/11/2024

The U.S. District Court for the District of Oregon granted on Dec. 10, the Federal Trade Commission’s request for a preliminary injunction to prevent Kroger from acquiring Albertsons in what would be the largest supermarket merger in U.S. history. The FTC challenged the $24.6 billion deal alongside a bipartisan group of nine state attorneys general.

The ruling, which could be appealed, is a big victory for FTC Chair Lina Khan and the Biden administration in their efforts to fight inflation at the checkout, a Reuters report said, noting that U.S. District Judge Adrienne Nelson agreed in the ruling that the merger was likely to remove direct competition between the two grocers, which would make it unlawful.

Nelson said the FTC did not present enough evidence of its theory that the deal would decrease competition for unionized grocery labor, per the Reuters report, which also said that a Washington state court judge in Seattle separately ruled to block the merger on Tuesday in a case brought by Attorney General Bob Ferguson.

A Kroger spokesperson provided Drug Store News with the following statement: "Through its proposed merger with Albertsons, Kroger would invest more than $1 billion in lower grocery prices, invest an additional $1 billion in higher grocery worker wages, and invest an additional $1.3 billion to improve Albertsons stores. Kroger is disappointed in the opinions issued by the U.S. District Court for the District of Oregon and the Washington State Court, which overlook the substantial evidence presented at trial showing that a merger between Kroger and Albertsons would advance the company’s decades-long commitment to lowering prices, respecting collective bargaining agreements, and is in the best interests of customers, associates, and the broader competitive environment in a rapidly evolving grocery landscape. The Company is currently reviewing its options.”

Albertsons provided Drug Store News with the following statement: “We are disappointed by the U.S. District Court’s decision to grant the FTC’s request for a preliminary injunction. We believe we clearly outlined during the proceedings how the proposed merger would expand competition, lower prices, increase associate wages, protect union jobs, and enhance customers’ shopping experience. We are carefully reviewing the Court’s opinion and are evaluating our options in accordance with the merger agreement.”

In response to the district court’s order, Bureau of Competition director Henry Liu issued the following statement: “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 Von’s 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.

I want to also congratulate all of the FTC staff, including the Mergers IV team, for their hard work on this case.”

Following this news, Albertsons today announced it has exercised its right to terminate its merger agreement with Kroger after the U.S. District Court in Oregon and the King County Superior Court for the State of Washington issued injunctions with respect to the proposed merger on Dec. 10, 2024.

Vivek Sankaran, CEO, said, “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.”

Sankaran continued, “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.”

Sankaran concluded, “Finally, we want to thank all our 285,000 dedicated team members for their relentless focus on taking care of our customers and communities that we serve, day in and day out.”

Jim Donald, board chair, added, “This leadership team continues to transform the business and adapt to an ever-changing consumer landscape. The Board of Directors is energized by the progress made to date and is confident in the leadership team’s plans to continue driving long-term stockholder value.”

Furthermore, Cerberus Capital Management, the company’s largest shareholder, stated that, “While we are disappointed with the courts’ decisions, we remain confident in Albertsons’ strength as a standalone company, and we believe that it is significantly undervalued in its current trading range. Accordingly, Cerberus has no intention of selling any of its shares in the Company. Cerberus initially invested in Albertsons in 2006, with additional investments in 2013 and 2015 to support significant and strategic value creation opportunities. As a long-term investor in and partner to Albertsons across multiple investments and throughout the evolution of its competitive environment, Cerberus is proud of the Company’s performance and it will continue to be a strong supporter of Albertsons, its talented leadership team, and its dedicated associates.”

Albertsons today also filed a lawsuit against Kroger in the Delaware Court of Chancery, bringing claims for 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 of Kroger under the terms of the merger agreement between the parties (the “Merger Agreement”). Pursuant to the Court of Chancery rules, Albertsons’ complaint against Kroger is temporarily under seal.

Tom Moriarty, Albertsons’ general counsel and chief policy officer, said: “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.”

Moriarty continued: “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.”

Albertsons said 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.

Albertsons 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, Albertsons said.

In light of the Oregon and Washington courts’ rulings enjoining the company’s proposed merger with Kroger and Kroger’s failure to close the merger before the contractual deadline to do so, Albertsons has notified Kroger of its decision to terminate the merger agreement. This 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, Albertsons said.

Kroger issued a statement which said Albertsons' claims are baseless and without merit.

The statement continued, "Kroger 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.

"We are incredibly proud of the Kroger team for how they worked through the merger process with the highest degree of integrity and commitment.

"We are confident in Kroger's value creation model to drive sustainable growth. Kroger's Board of Directors is currently evaluating next steps that serve the best interests of Kroger's customers and associates, and create value for shareholders."

This story has been updated.

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