Kroger, Albertsons Terminate Megamerger Agreement
The Kroger Company and Albertsons Companies this week terminated the proposed $24.6 billion merger agreement that was initially announced more than two years ago, after a federal judge sided with the Federal Trade Commission suing to block the deal and Washington and Oregon state courts put permanent injunctions in place to halt the transaction.
Albertsons announced Wednesday it has filed a breach of contract and breach of the covenant of good faith and fair dealing lawsuit in Delaware Chancery Court against Kroger. The official complaint is temporarily under seal.
Boise, Idaho-based Albertsons is seeking “billions of dollars” in damages from Kroger, claiming that its shareholders have been denied the “multi-billion-dollar premium” they would have received if the deal went through, but instead have been subject to decreased value as a result of Kroger’s actions.
On top of an immediate $600 million termination fee, Albertsons believes it is entitled to additional relief for the multiple years and hundreds of millions of dollars spent pursuing the deal.
Albertsons claims that the federal and state court decisions were strongly swayed by Kroger’s actions including “repeatedly refusing to divest assets necessary for antitrust approval, ignoring regulators’ feedback, rejecting stronger divestiture buyers and failing to cooperate with Albertsons,” according to the press release.
“Rather than fulfill its contractual obligations to ensure that the merger succeeded, Kroger acted in its own financial self-interest,” said Tom Moriarty, Albertsons’ general counsel and chief policy officer, in the release. “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, meanwhile, is “moving forward from a position of strength,” according to its chairman and CEO, Rodney McMullen.
The Cincinnati-based grocery company said on Wednesday it will invest in lowering prices, increasing wages and charitable contributions, and remodeling its stores. Additionally, Kroger’s board of directors approved a new $7.5 billion share repurchase authorization, which replaces its existing $1 billion program approved in 2022.
“Our strong balance sheet and free cash flows position us to deliver on our commitment to grow the business and return capital to shareholders, maintaining capacity to invest in lower prices and higher associate wages,” McMullen said in a statement.
Had the deal been approved, the combined company would have encompassed about 4,400 stores and generated an estimated $230 billion in annual revenue.
As for Albertsons, CEO Vivek Sankaran said it will begin its next chapter in a “strong financial condition” despite repeatedly emphasizing in court that the merger was essential for it to continue to compete in the grocery industry against mass retailers like Walmart and Amazon. Albertsons noted it is now able to pursue additional strategic opportunities now that the transaction has been terminated.
“While we are disappointed with the courts’ decisions, we remain confident in Albertsons’ strength as a standalone company, and we believe that it is significantly undervalued in its current trading range,” said Cerberus Capital Management, L.P., the company’s largest shareholder, in a statement.
