BOISE, IDAHO — Albertsons Cos. has exited its $24.6 billion merger transaction with The Kroger Co. and filed a lawsuit claiming that Kroger breached the merger agreement, less than a day after a pair of court rulings stopped the more than two-year-old deal.

Boise, Idaho-based Albertsons said on Dec. 11 that it has exercised its right to terminate the merger pact with Kroger. The supermarket chain cited a preliminary injunction against the deal granted by the US District Court in Oregon after a Federal Trade Commission lawsuit and a permanent injunction prohibiting the merger granted by the King County Superior Court in Washington after the state’s attorney general sued to block the transaction. Both court decisions came close together on Dec. 10. Under the deal, Kroger was slated to acquire Albertsons.

“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,” said Vivek Sankaran, chief executive officer of Albertsons. “We are deeply disappointed in the courts’ decisions.”

Albertsons’ largest shareholder, New York-based Cerberus Capital Management LP, expressed its continued support of the grocery chain, which has 2,267 retail food and drug stores with 1,726 pharmacies, 22 distribution centers, 19 manufacturing plants and 405 fuel centers in 34 states and the District of Columbia.

“While we are disappointed with the courts’ decisions, we remain confident in Albertsons’ strength as a stand-alone company, and we believe that it is significantly undervalued in its current trading range,” Cerberus said. “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 sues Kroger

Under the merger pact, announced Oct. 14, 2022, Albertsons and Kroger had the right to terminate the agreement if any governmental entity “shall have issued a final, non-appealable order or taken any other action, in each case permanently restraining, enjoining or otherwise prohibiting the consummation of the transactions or any law that permanently makes consummation of the transactions illegal or otherwise prohibited shall be in effect.”

The termination clause also stipulates the payment of a $600 million fee if the transaction is ended in the event of the merger’s “failure to be satisfied resulting from an injunction or order entered or issued by a governmental entity under any antitrust law.”

Albertsons announced the breach-of-contract suit against Kroger immediately after reporting its termination of the merger deal. In addition, Albertsons is suing Kroger for “breach of the covenant of good faith and fair dealing,” alleging that the Cincinnati-based supermarket giant failed to exercise “best efforts” and to take “any and all actions” to gain regulatory approval of the merger agreement.

Among its claims, Albertsons charges that Kroger “willfully breached the merger agreement” by “repeatedly refusing to divest assets necessary 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, general counsel and chief policy officer at Albertsons. “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.”

Kroger called Albertsons’ claims “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,” Kroger said in a Dec. 11 statement. “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.”

Albertsons said it is “seeking billions of dollars in damages from Kroger to make Albertsons and its shareholders whole,” citing loss of the “multi-billion-dollar premium” that Kroger agreed to pay for Albertsons’ shares, decreased share value during the long merger process and the “time, energy and resources” invested in pursuing the merger.

In addition, Albertsons said it seeks payment of the $600 million termination fee plus relief for the “multiple years and hundreds of millions of dollars” expended in the merger review process, as well as recovery of certain expenses and costs.

Kroger denied Albertsons’ claims that it acted with less than good intentions as the companies pursued the merger’s approval.

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

Albertsons looks to move on

Sankaran said Albertsons stands well-positioned to further its “Customers for Life” strategy, which focuses on efforts to enhance its fresh food, private label and health and wellness (including pharmacy) offerings; bolster its value proposition to consumers; grow its loyalty program; improve its in-store experience; expand omnichannel access; drive retail media revenue; and optimize its supply chain. The company also said it aims to identify “additional opportunities for value creation through the optimization of our substantial real estate footprint and other assets.”

“We start this next chapter in strong financial condition with a track record of positive business performance,” Sankaran said. “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.

With fiscal 2023 sales of $79.24 billion, Albertsons operates stores under more than 20 retail banners, including Albertsons, Safeway, Vons, Jewel-Osco, Shaw’s, Acme, Tom Thumb, Randalls, United Supermarkets, Pavilions, Star Market, Haggen, Carrs, Kings Food Markets and Balducci’s Food Lovers Market. 

“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,” Sankaran added. “We will be providing additional details on our plan no later than our earnings conference call in January 2025.”

Albertsons also announced plans to raise its quarterly cash dividend 25% from 12¢ per share to 15¢ per share and said its board of directors has approved a share buyback program of up to $2 billion, including the current authorization.

“This leadership team continues to transform the business and adapt to an ever-changing consumer landscape,” said Jim Donald, chairman of Albertsons. “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.”

Donald — a former CEO of Albertsons as well as of Starbucks Corp. — was elected to the chairman’s post on Oct. 24 after serving as co-chairman since April 2019. Also effective that date, Albertsons’ board appointed Cerberus co-CEO Stephen Feinberg as a director for the term expiring at the company’s 2025 annual shareholders meeting.

Kroger also reiterated comments after the court rulings that the company remains in a strong position. Kroger’s “Leading with Fresh and Accelerating with Digital” strategy focuses on the “competitive moats” of “Fresh, Our Brands (private label), Personalization and Seamless (omnichannel),” as well as growing alternative revenue streams such as retail media and data and analytics.

“We are confident in Kroger’s value creation model to drive sustainable growth,” Kroger said. “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.”