Monday, December 23, 2024

Albertsons sues Kroger after calling off $25bn supermarket merger

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Albertsons has ended its proposed combination with Kroger and filed a lawsuit against its would-be acquirer, after two separate judges blocked the companies’ plan for the largest supermarket merger in US history.

Albertsons on Wednesday announced the decision to call a halt to the $25bn deal, which had been dogged by competition concerns. On Tuesday US district judge Adrienne Nelson in Oregon imposed a preliminary injunction on the deal that would have sent it to the Federal Trade Commission for further consideration. A judge in Washington state court also ruled against the deal.

Albertsons also said Wednesday that it had sued Kroger in the Delaware Court of Chancery, bringing claims including breach of contract for Kroger’s alleged “failure to exercise ‘best efforts’ and to take ‘any and all actions’ to secure regulatory approval” of the proposed tie-up.

Kroger said Albertsons had brought claims that were “without merit” and committed “repeated intentional breaches and interference” throughout the merger process. Kroger described it as an “attempt to deflect responsibility following Kroger’s written notification of Albertsons’ multiple breaches of the agreement” and claim a termination fee.

The deal’s demise is a victory for outgoing Federal Trade Commission chair Lina Khan, who has succeeded in slowing mergers and acquisition activity for several years through stringent antitrust enforcement policies. On Tuesday, US president-elect Donald Trump named Andrew Ferguson, former chief counsel for top Senate Republican Mitch McConnell, to replace Khan as chair. Ferguson, who is already an FTC commissioner, is expected to usher in a more relaxed agenda towards transformative mergers and acquisitions.

Kroger and Albertsons, two of the largest grocery chains in the US, argued the tie-up would help them withstand competition from grocery rivals and retailers Walmart, Amazon and Costco. The deal would have formed a supermarket behemoth, with a combined 5,000 stores across 48 US states.

It has been bogged down in litigation since it was agreed in 2022. The Federal Trade Commission, which sued to block the deal in February, argued the merger would eliminate competition and lead to a surge in grocery prices for millions of Americans.

The two chains attempted to divest several hundreds of stores to secure antitrust approval, which failed to assuage the US antitrust regulator. The FTC called the divestiture a “hodgepodge of unconnected stores . . . that Kroger’s antitrust lawyers have cobbled together and falls far short of mitigating the lost competition between Kroger and Albertsons.”

In siding with the FTC, US district judge Adrienne Nelson in Oregon agreed that the deal would lessen competition, and granted a preliminary injunction to halt it. A judge in Washington state also granted a permanent injunction to block the deal.

Albertsons says it is owed $600mn in a termination fee over Kroger’s failure to close the deal before its contractual deadline, according to a release, plus additional payment. It says it is seeking 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”.

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