Kroger CEO doesn’t rule out litigation if regulators block Albertsons merger

Kroger Co. Chairman and CEO Rodney McMullen has reiterated his company’s willingness to pursue litigation, if necessary, in the event that regulators reject its $24.6 billion deal to merge with fellow supermarket giant Albertsons Cos.

“Albertsons and Kroger both committed, as part of the original agreement, that if for some reason it was litigated, we would litigate. And we committed to that in advance,” McMullen told Bloomberg in a video interview at its New York headquarters. (See video below.)

Indeed, the merger agreement unveiled on Oct. 14 includes a provision saying that Kroger would take legal action if regulators or other parties sought to block the transaction. Listed under “Regulatory Matters,” the section of the merger document reads as follows:

“If any proceeding is instituted (or threatened) challenging the merger as violating any antitrust law or if any decree, order, judgment, or injunction (whether temporary, preliminary, or permanent) is entered, enforced, or attempted to be entered or enforced by any governmental entity that would make the merger illegal or otherwise delay or prohibit the consummation of the merger, parent and its affiliates and subsidiaries shall take any and all actions (i) to contest and defend any such proceeding to avoid entry of, or to have vacated, lifted, reversed, repealed, rescinded, or terminated, any decree, order, judgment, or injunction (whether temporary, preliminary, or permanent) that prohibits, prevents, or restricts consummation of the transactions and (ii) to eliminate each and every impediment under any antitrust law to close the transactions prior to the Outside Date [for finalizing the transaction].”

The agreement indicates that Kroger and Albertsons have set Jan. 13, 2024, as the tentative closing date for the deal, but the companies can request 30-day extensions, up to a maximum of 270 days.

Wall Street analysts have said Kroger and Albertsons did their legal and regulatory homework on the proposed transaction, and both McMullen and Kroger Chief Financial Officer Gary Millerchip have previously said they see a clear path toward antitrust approval with store divestitures.

McMullen told Bloomberg that Kroger and Albertsons “had the best advisers you could have” in putting together the merger agreement, under which Kroger plans to acquire Albertsons.

The merger talks with the Federal Trade Commission are on track, according to McMullen. “If you look at the process itself, we are where we thought we would be,” he said in the interview, adding, “We always knew it would be 2024 before we expected to be able to close.”

The Kroger-Albertsons merger—joining the nation’s largest conventional supermarket retailers—would form a company with annual revenue of about $210 billion and 4,996 stores, 66 distribution centers, 52 manufacturing plants, 3,972 pharmacies, 2,015 fuel centers and 710,000 workers in 48 states and the District of Columbia.

In early December, Kroger received a second request for information from the FTC on the proposed merger. To address antitrust concerns, Kroger and Albertsons have said they plan to divest 100 to 375 stores via direct sales to other operators and/or a newly formed spinoff company, dubbed SpinCo. Their agreement includes a cap of 650 store divestitures, at which point the companies could opt to reassess the transaction.
“We’re in the process right now of talking to numerous potential buyers,” McMullen told Bloomberg.

Kroger has previously said the merger wouldn’t result in worker layoffs or store closings, and McMullen noted to Bloomberg that divested stores wouldn’t go to questionable operators.

“It’s going to be important for us, and from the FTC’s standpoint, to make sure we have strong, viable buyers that are incredibly good competitors but also providing great job security,” he said.

McMullen’s comments to Bloomberg reflect recent remarks on the progress of regulatory negotiations for the merger.

“We are working cooperatively with regulators, responding to the Federal Trade Commission’s second request, and in discussions about the transaction, while also working to identify potential buyers for the stores we expect to divest to obtain clearance for the transaction,” McMullen said in an early March call with analysts on Kroger’s fiscal 2022 results. (Call transcript provided by AlphaSense.)

“We are pleased with the level of interest received thus far,” McMullen added in the call, “and will work towards finding a solution that benefits all stakeholders. We remain on track to close the transaction in early 2024.”

Though Kroger and Albertsons continue to anticipate an early 2024 completion for the deal, analysts and other industry observers say antitrust clearance likely will take longer for such a large transaction—the biggest U.S. supermarket merger ever—and could last as long as two years.

The companies recently have acted to bolster public and political support for the deal. In late April, McMullen and Albertsons CEO Vivek Sankaran addressed what they see as public “misconceptions” about the pending merger in a Cincinnati Enquirer op-ed article. Also, in March, Kroger confirmed that it has enlisted former U.S. House Speaker John Boehner (R., Ohio) as a strategic adviser. Boehner, now a senior strategic adviser at Washington, D.C., lobbying and legal powerhouse Squire Patton Boggs, is slated to serve as a “strategic counsel” for Kroger. The retailer has retained the services of Squire Patton Boggs, and ex-aides for Boehner are reportedly part of the lobbying team.