Bombay Durpun - Food fight: $25 bn US grocery deal falls apart

A day after two courts sided with antitrust regulators who argued the deal was bad for consumers, Albertsons announced it was terminating the transaction and seeking billions of dollars in damages because of Kroger's "willful" breach of contract in failing to exercise "best efforts" to close the deal.

Kroger quickly shot back at Albertson's "baseless" lawsuit, which is being filed in a Delaware court.

"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.

"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."

When the companies unveiled the transaction in October 2022, they argued the deal would benefit consumers because the companies could take advantage of economies of scale to compete more effectively with giants like Walmart and Amazon who are also big grocery sellers.

Together the companies have some 710,000 employees and 5,000 stores in the United States.

- Surging consumer prices -

But a deal involving consumer-facing companies faced an uphill challenge in a period when inflation has left US consumers struggling to pay for household staples.

The Federal Trade Commission challenged the merger in February 2024, arguing the transaction would lead to "higher prices for groceries and other essential household items for millions of Americans."

US District Judge Adrienne Watson of Oregon, who oversaw a three-week federal trial on the transaction, said the supermarket companies' claims were "neither merger-specific nor verifiable," according to her ruling.

"Plaintiffs are likely to succeed on the merits," Watson wrote in a court filing released Tuesday that said an injunction was merited.

Later on Tuesday, a Washington state court also ruled on the merger, permanently blocking the transaction, according to US legal trade publication Law360.

In statements released by Albertsons, the Boise, Idaho supermarket chain said it was "disappointed" by the court ruling and squarely placed blame on Kroger.

"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," the company said.

"Albertsons also seeks to recover for the time, energy and resources it invested in good faith to try to make the merger a success."

Albertsons emphasized the company's ability to grow as a free-standing company as it unveiled plans to raise its quarterly divided and undertake up to $2 billion in share repurchases.

Cincinnati-based Kroger, meanwhile, staunchly defended its conduct as it expressed confidence in the company's "value creation model to drive sustainable growth."

"Kroger looks forward to responding to these baseless claims in court. We went to extraordinary lengths to uphold the merger agreement," Kroger said.

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

Shares of Albertsons rose 1.0 percent early Wednesday while Kroger also climbed 1.0 percent.

D.Wason--BD