Albertsons says grocery shoppers are the ones who are ultimately hurt by its failed merger with Kroger. But it’s Albertsons, not grocery shoppers, now seeking billions of dollars in damages – and putting the blame for the aborted deal squarely on Kroger.
In a newly-unsealed lawsuit that Albertsons filed under seal last week, the jilted partner accuses Kroger of “suffering a classic case of buyer’s remorse” soon after agreeing to their proposed $25 billion merger, and proceeding to derail the deal with inadequate measures that led to insurmountable legal challenges from state and federal officials.
After announcing their planned merger back in 2022, Kroger “had second thoughts after a negative market reaction,” Albertsons’ lawsuit alleges. As a result, “rather than take the steps it knew would give the merger the best chance to succeed, and which it had agreed to take, Kroger put itself first.”
Albertsons’ complaints echo those cited in two legal decisions issued last week. The Federal Trade Commission and the state of Washington both shot down the deal as being anticompetitive, partly due to an inadequate plan to divest stores in markets where Kroger and Albertsons are each other’s main competitor.
Kroger chose to sell as few stores as possible, ensured it was only selling Kroger’s worst performers, and opted to sell to one of the least-qualified buyers, Albertsons alleges, calling it “malfeasance” that led directly to the deal’s rejection.
Albertsons says the two parties agreed to sell up to 650 stores to ensure the merger’s approval. But Kroger “did not hold up its end of the bargain,” and “cherry-picked its low-performing, unattractive stores, in a hodgepodge of localities” in coming up with an initial list of just 238 stores – an inadequate divestiture that Albertsons says regulators were sure to reject.
Kroger also “passed up highly qualified divestiture buyers” in order to sell to C&S Wholesale Grocers, which currently only operates a couple of dozen grocery stores and would have suddenly found itself the new owner of hundreds of stores across the country. “Kroger’s search for a divestiture buyer was disorganized, protracted, and contributed to the ultimate failure of the merger,” the lawsuit alleges.
Eventually, and reluctantly, Albertsons says Kroger upped its final offer to 579 stores – still well below the maximum of 650 to which they had agreed – one of many instances of Kroger “spending months delaying responses to regulators and then providing half-baked proposals that were objectively destined to fail,” the lawsuit reads.
Throughout the process, Albertsons says Kroger showed a “recalcitrance toward cooperating with Albertsons,” and “willfully squandered every opportunity to obtain antitrust approval.”
And, adding insult to injury, Albertsons says Kroger “used its position as the proposed buyer to denigrate Albertsons,” with Kroger’s CEO saying a week before the merger was called off that his company would do just fine with or without Albertsons.
Albertsons is now seeking a $600 million breakup fee and “billions of dollars in damages,” as it accuses Kroger of breach of contract. “This action seeks to hold Kroger responsible for the harm it caused” to Albertsons and to consumers who “suffered the loss of a supermarket option offering lower prices and increased choice.” A successful merger, it says, “would have benefited American consumers by creating a combined company with the necessary scale to drive down prices, invest in higher quality products, promote and protect consumer choice… and protect union jobs.”
Kroger has not yet filed a formal response to the lawsuit, but in an earlier statement, it pointed the finger at Albertsons, accusing it of “repeated intentional material breaches and interference throughout the merger process,” and called the lawsuit “baseless and without merit” and an “attempt to deflect responsibility.”
As this fight gets ugly, Albertsons claims it’s the American shopper who will suffer most, painting a bleak picture of what could happen if Albertsons is no longer able to compete with its larger rivals. “For many American communities, this transaction represented hope for the continued viability of the local grocery stores that have sustained their communities for generations,” Albertsons’ lawsuit reads. “If dedicated grocery stores like those operated by Albertsons were forced to close due to their inability to match the prices of their superstore competitors, consumers would suffer” and would be “forced to shop for groceries only at Walmart, Costco, and their ilk.”
Despite the hyperbole, the end of the merger is unlikely to mean the end of the traditional American grocery store. One thing is for sure, though – the end of the merger has turned out to be just the first step in an even more contentious battle.
Image sources: Kroger/Albertsons
