A federal judge in Oregon on Tuesday blocked the proposed $24.6 billion deal between Kroger and Albertsons Companies, siding with the Federal Trade Commission.
About an hour later, Washington State Superior Court Judge Marshall Ferguson ruled the merger violated Washington consumer protection laws and blocked it from moving forward in that state.
Early Wednesday, Albertsons Companies announced it would terminate the merger agreement and that the company filed a lawsuit against Kroger in Delaware Chancery Court for breach of contract. Albertsons alleges Kroger failed to uphold its promise 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 Boise-based grocer released a short statement Tuesday expressing its disappointment in the federal court's ruling. Wednesday morning, Albertsons CEO Vivek Sankaran repeated that disappointment in the courts' decisions, and thanked the company's 285,000 employees for their dedication.
In its news release announcing the lawsuit, Albertsons accused Kroger of ignoring the advice of regulators and rejecting other divestiture proposals. The proposal called for 579 stores to be spun off to a third party, C&S Wholesale Grocers. Both the federal judge and Washington State Superior Court judge who ruled against the sale targeted the divestiture plan in their opinions, with Oregon District Judge Adrienne Nelson writing the plan "is not sufficient in scale to adequately compete with the merged firm and is structured in a way that will significantly disadvantage C&S as a competitor."
Nelson's ruling noted that of 334 grocery stores acquired by C&S between 2001 and 2012, all but three remained with the company in 2012. Nelson also questioned the ability and experience of C&S to run a retail grocery operation, despite Albertsons committing around 1,000 current employees to transfer to C&S in the deal, including Albertsons Chief Operating Officer Susan Morris.
The company says its entitled to an immediate termination payment of $600 million, and will pursue billions in damages to recover from the lost opportunity and the time invested in trying to make the merger work.
"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," the company wrote.
Albertsons had argued in court its stability as a company could be at risk if the merger doesn't go through, not directly using a "failed firm" defense, but warning throughout proceedings that "tough decisions" would likely be needed related to store performance. Both companies expressed concerns about their abilities without merging to successfully compete with larger retail companies. Those concerns aren't enough to outweigh antitrust law, Nelson wrote.
"The overarching goals of antitrust law are not met, however, by permitting an otherwise unlawful merger in order to permit firms to compete with an industry giant."
Sankaran, in Wednesday's statement, looked to the future.
"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."Vivek Sankaren
Majority shareholder, investment fund Cerberus Capital Management, also expressed optimism about Albertsons future, and said it had no plans to sell any of its shares in the company, which it considers undervalued.
The company also announced a .03 increase, 25% to its next quarterly dividend, and a $2 billion stock buyback plan, which will be funded by cash from ongoing profits.
Albertsons shareholders in late 2022 were awarded a $4 billion special dividend, announced alongside the merger plans. The company took on $1.5 billion in new debt and used $2.5 billion in cash reserves to fund the payout, which was unsuccessfully challenged in court.
Kroger, in a statement early Wednesday to the Associated Press, wrote it disagrees with Albertsons “in the strongest possible terms,” and blamed Albertsons for “repeated intentional material breaches and interference throughout the merger process.”
This story will be updated.
Editor's Note: A previous version of this story incorrectly referred to C&S Wholesale Grocers as 'C&S Grocery Wholesalers'.
