Albertsons Companies has terminated its $24.6 billion merger agreement with Kroger after courts in Oregon and Washington issued rulings blocking the deal on Dec. 10, 2024. These legal decisions mark a significant setback for what would have been one of the largest consolidations in the grocery industry.
Albertsons also filed a lawsuit against The Kroger Co. 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 out of Kroger’s failure to “use its best efforts” and take “any and all steps” to secure regulatory approval of the merger transaction agreed to by the companies, as required of Kroger under the terms of the merger agreement between the parties.
Kroger immediately responded by assuring Albertsons’ claims were baseless and without merit.
“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.”
The merger, announced in 2022, aimed to position the companies to compete more effectively against industry giants like Walmart, Costco, and Amazon.
Albertsons CEO Vivek Sankaran expressed disappointment with the outcomes. He stated, “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 court’s decisions.”
Albertsons’ Lawsuit
In a press release, Albertson alleged 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.
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 the merger succeeded, Kroger acted in its 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 merger’s significant benefits has been lost because 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’ 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 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 successful.
Kroger Denies Allegations
The supermarket chain maintained that Albertsons’ lawsuit is an attempt to deflect liability following Kroger’s written notice of Albertsons’ multiple breaches of the agreement and to seek payment of the merger break-up fee, to which they are not entitled.
“Kroger expects to respond to these baseless allegations in court. We did everything we could to uphold the merger agreement throughout the regulatory process, and the facts will make that abundantly clear. We are incredibly proud of the Kroger team for how they have worked throughout the merger process with the highest degree of integrity and commitment.”
The statement adds: “We are confident in Kroger’s value creation model to drive sustainable growth. Kroger’s Board of Directors is currently evaluating the next steps that will serve the best interests of Kroger customers and associates and create value for shareholders.”
Legal Challenges Derail Merger Plan
The merger faced multiple legal challenges. On Dec. 10, U.S. District Court Judge Adrienne Nelson issued a preliminary injunction after a three-week hearing in Portland, Oregon. Judge Nelson determined that the merger posed significant risks to competition and could harm consumers by leading to higher prices for essential groceries.
Shortly thereafter, Judge Marshall Ferguson of Washington’s King County Superior Court issued a permanent injunction, concluding that the merger would reduce competition within the state and violate consumer protection laws.
These rulings highlighted growing concerns over corporate consolidations in the grocery industry, which serves as a critical lifeline for many American households.
Related Article: Kroger’s Merger with Albertsons Promises Lower Prices
Proposed Merger Details and Antitrust Concerns
When Albertsons and Kroger announced their merger plan in 2022, the companies argued that combining their resources would result in greater efficiency, enhanced customer experiences, and better pricing. They also emphasized that the merger would allow them to invest in technology and streamline supply chains to compete with retail powerhouses like Walmart.
However, critics raised concerns about the potential consequences of such consolidation. Advocacy groups, consumer organizations, and lawmakers argued that the merger could lead to store closures, job losses, and price increases for essential goods.
The Federal Trade Commission (FTC), which monitors antitrust practices, played a central role in opposing the merger, working closely with state attorneys general to block the deal.
FTC Celebrates Consumer Victory
In a statement following the court rulings, the FTC celebrated the decision to block the merger as a victory for consumers. “The FTC, along with our state partners, scored a major win for the American people, successfully blocking Kroger’s acquisition of Albertsons. This historic decision 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,” the statement read. The agency noted that the decision directly impacts shoppers at grocery chains under the Albertsons and Kroger banners, including Fry’s, Vons, and Jewel-Osco.
Albertsons Looks Ahead With Strength and Strategy
Despite the merger’s failure, Albertsons’ leadership remains optimistic about the company’s future as an independent entity.
Sankaran highlighted the company’s strong financial position and ability to navigate market challenges. “We start this next chapter in strong financial condition with a track record of positive business performance,” he said. Over the past two years, Albertsons has invested in core operations, new revenue streams, and innovative technologies, laying the groundwork for sustained growth.
Sankaran also highlighted the company’s rich asset portfolio, including premium locations and valuable real estate. These resources, he noted, will support Albertsons in accelerating its “Customers for Life” strategy and other initiatives aimed at long-term value creation. The company plans to share more details during its earnings call in January 2025.
Board and Investors Stand Behind Albertsons
Albertsons’ board chair, Jim Donald, commended the leadership team for its resilience and adaptability. “This leadership team continues transforming the business and adapting 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,” he said.
Albertsons’ largest shareholder, Cerberus Capital Management, echoed this sentiment. The firm reaffirmed its commitment to Albertsons and expressed confidence in the company’s value as a standalone entity. “While we are disappointed with the courts’ decisions, we believe that Albertsons remains significantly undervalued. Cerberus has no intention of selling its shares and will continue to support the company,” the statement read. Cerberus initially invested in Albertsons in 2006 and has since provided financial backing for various growth initiatives.
The Path Forward for Kroger and Albertsons
The failed merger leaves both Albertsons and Kroger navigating a competitive grocery market independently. While Albertsons aims to strengthen its brand and operational efficiency, Kroger will likely reevaluate its strategy for growth amid increasing pressure from major retailers. The challenges faced in securing this merger may also signal heightened regulatory scrutiny for future deals in the retail sector.