Albertsons terminates merger agreement, files lawsuit against Kroger

Albertsons Companies, Inc. on Wednesday announced that it would officially terminate its pending $25 billion merger agreement with Kroger, following decisions by two courts blocking the long-pending merger deal. Albertsons is now also suing Kroger for billions of dollars, stating that Kroger refused to offer an adequate divestiture package and repeatedly ignored regulators’ concerns—moves that Albertsons claims caused the merger deal to be blocked.

On Tuesday, both the U.S. District Court in Oregon and the King County Superior Court for the State of Washington issued injunctions ruling that the merger should not move forward. First announced in 2022, the merger sought to combine the country's two largest grocers.

Albertsons Companies filed the lawsuit against Kroger on Wednesday in the Delaware Court of Chancery, bringing claims for willful breach of contract and breach of the covenant of good faith and fair dealing arising from Kroger’s failure to exercise “best efforts” and to take “any and all actions” to secure regulatory approval of the companies’ merger deal.

In a statement Wednesday, Kroger called Albertsons suit “baseless and without merit.” The statement continued: “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.”

Related:5 things you might not have known about the Kroger, Albertsons merger decision

Tom Moriarty, Albertsons’ general counsel said on Wednesday: “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.”

Albertsons is seeking billions of dollars in damages in the lawsuit. According to a statement released Wednesday by Albertsons, its 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. 

This termination of the merger, according to Albertsons, entitles Albertsons to an immediate $600 million termination fee.

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In addition to that fee, Albertsons is seeking additional restitution for “multiple years and hundreds of millions of dollars devoted to obtaining approval for the merger, along with the extended period of unnecessary limbo Albertsons endured as a result of Kroger’s actions.”

In a statement, Albertsons CEO Vivek Sankaran said: “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. We are deeply disappointed in the courts’ decisions.”

In a statement released Wednesday, Albertsons talked about its projected financial results for the remainder of the year. The retailer said it expects annual identical sales growth in the range of 1.8% to 2.2%, an annual adjusted EBITDA in the range of $3.90 to $3.98 billion, and annual capital expenditures in the range of $1.8 to $1.9 billion. The retailer also announced that  it would increase its quarterly cash dividend by 25% and the board authorized a $2 billion share repurchase program.

Albertsons’ largest shareholder, Cerberus Capital Management, L.P. released this statement: “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,” adding that it had no plans to sell any of its shares in the company. Cerberus initially invested in Albertsons in 2006, with additional investments in 2013 and 2015. 

Related:Albertsons’ lawsuit: Kroger acted in its own ‘best interests,’ fouling $24.6B merger bid

Boise, Idaho-based Albertsons operates 2,267 retail food and drug stores with 1,726 pharmacies, 405 associated fuel centers, 22 dedicated distribution centers and 19 manufacturing facilities.