Albertsons Terminates Merger Agreement, Sues Kroger for Breach of Contract
Following injunctions from both the U.S. District Court in Oregon and the King County Superior Court for the State of Washington in regard to its proposed merger with The Kroger Co., Albertsons Cos. has moved to terminate the merger agreement. According to Albertsons CEO Vivek Sankaran, the company is deeply disappointed in the courts’ decisions.
“We start this next chapter in strong financial condition with a track record of positive business performance,” said Sankaran. “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.”
Continued Sankaran: “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.”
Additionally, Board Chair Jim Donald asserted that the Albertsons leadership team is working 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,” he said.
Meanwhile, Albertsons has filed a lawsuit against Kroger in the Delaware Court of Chancery, claiming Kroger’s willful breach of contract and breach of the covenant of good faith and fair dealing since the company failed to exercise “best efforts” and to take “any and all actions” to secure regulatory approval of the companies’ agreed merger transaction. Albertsons’ complaint against Kroger is temporarily under seal pursuant to local rules.
Albertsons asserts that Kroger willfully breached the companies’ merger agreement by refusing to divest the necessary assets for antitrust approval, ignoring regulators’ feedback, rejecting stronger divestiture buyers and failing to cooperate with Albertsons.
“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,” said Tom Moriarty, Albertsons’ general counsel and chief policy officer. “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.”
Continued Moriarty: “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 believes its claims against Kroger are confirmed by the recent court rulings, which granted regulators’ requests to block the merger, and is seeking billions of dollars in damages to make itself and its shareholders whole. Albertsons also seeks to recover for the time, energy and resources it invested in an attempt to make the merger a success.
Albertsons’ termination of the merger agreement entitles the company to an immediate $600 million termination fee and removes contractual constraints on Albertsons’ ability to pursue other strategic opportunities. The company is further seeking to recover certain expenses and costs related to the money it spent in an effort to obtain merger approval.
According to Kroger, Albertsons’ claims are 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," said a Kroger spokesperson. "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."
Continued the spokesperson: "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."
The spokesperson also said the Kroger board of directors is currently evaluating next steps.
Cincinnati-based Kroger serves more than 11 million customers daily through a digital shopping experience and retail food stores under a variety of banner names. The grocer employs 420,000 associates and is No. 4 on The PG 100, Progressive Grocer’s 2024 list of the top food and consumables retailers in North America.
As of June 15, Albertsons Cos. operated 2,269 retail food and drug stores with 1,725 pharmacies, 403 associated fuel centers, 22 dedicated distribution centers and 19 manufacturing facilities. The Boise, Idaho-based company operates stores across 34 states and the District of Columbia under more than 20 well-known banners. Albertsons is No. 9 on The PG 100.
