Albertsons Files Lawsuit Against Kroger for Breach of Merger Agreement

Rhea-AI Summary

Albertsons (NYSE: ACI) has filed a lawsuit against Kroger (NYSE: KR) in Delaware Court of Chancery for breach of merger agreement. The lawsuit alleges Kroger willfully breached the contract by refusing to provide adequate divestiture packages and ignoring regulators' concerns, leading to the merger being blocked by courts in Oregon and Washington.

Albertsons is seeking billions in damages to compensate for denied share premium, decreased shareholder value, and resources invested in the failed merger. The company has terminated the merger agreement, which entitles them to an immediate $600 million termination fee and removes constraints on pursuing other strategic opportunities.

Positive

• Entitled to receive $600 million termination fee
• Freedom to pursue new strategic opportunities after merger constraints removal

Negative

• Loss of multi-billion-dollar share premium from failed merger
• Decrease in shareholder value
• Wasted resources and time pursuing merger approval
• Inability to pursue other business opportunities during merger period

Insights

Legal Expert

The lawsuit against Kroger represents a significant legal and financial development in what was supposed to be a 24.6 billion merger deal. The key allegations focus on Kroger's alleged failure to meet its contractual obligations, particularly regarding antitrust clearance efforts. The immediate impact includes a guaranteed 600 million termination fee to Albertsons, but the company is seeking billions more in damages.

The complaint's emphasis on Kroger's "willful breach" of the merger agreement, specifically regarding insufficient divestiture proposals and failure to address regulatory concerns, suggests a strong legal position. The recent court rulings in Oregon and Washington blocking the merger provide substantial supporting evidence for Albertsons' claims. This legal battle could have long-lasting implications for future retail merger attempts and antitrust compliance strategies.

Financial Analyst

This development marks a significant setback for both companies' strategic growth plans. For Albertsons shareholders, the immediate impact is twofold: securing the 600 million termination fee while losing the premium valuation offered in the original merger deal. The lawsuit's outcome could significantly affect Albertsons' market value and future strategic options.

The failure of this merger leaves both retailers facing intensified competition in a challenging market environment. Albertsons must now pivot to alternative growth strategies while dealing with operational constraints experienced during the merger attempt. The company's pursuit of additional damages beyond the termination fee could provide substantial capital for future initiatives but may lead to prolonged legal proceedings affecting investor sentiment.

Kroger refused to offer an adequate divesture package and repeatedly ignored regulators’ concerns, causing the merger with Albertsons to be blocked

Seeks billions of dollars in damages to account for harm to Albertsons’ business, consumers, associates and shareholders

BOISE, Idaho--(BUSINESS WIRE)-- Albertsons Companies, Inc. (NYSE: ACI) (“Albertsons”) today filed a lawsuit against The Kroger Co. (NYSE: KR) (“Kroger”) 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’ agreed merger transaction, as was required of Kroger under the terms of the merger agreement between the parties (the “Merger Agreement”). Pursuant to the Court of Chancery rules, Albertsons’ complaint against Kroger is temporarily under seal.

Kroger willfully breached the Merger Agreement in several key ways, including by repeatedly refusing to divest assets necessary for antitrust approval, ignoring regulators’ feedback, rejecting stronger divestiture buyers and failing to cooperate with Albertsons.

Tom Moriarty, Albertsons’ General Counsel and Chief Policy Officer, said: “A successful merger between Albertsons and Kroger would have delivered meaningful benefits for America's consumers, Kroger’s and Albertsons’ associates, and communities across the country. 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.”

Mr. Moriarty continued: “We are taking this action to enforce and preserve Albertsons’ rights and to protect the interests of our shareholders, associates and consumers. We believe strongly in the merits of our case and look forward to presenting it to the Court to hold Kroger responsible for the harm it has caused.”

Albertsons’ claims against Kroger are confirmed by the recent rulings from the United States District Court for the District of Oregon and the King County Superior Court for the State of Washington, which granted regulators’ requests to block the merger. Those results could have been avoided but for Kroger’s breaching conduct.

Albertsons is seeking billions of dollars in damages from Kroger to make Albertsons and its shareholders whole. 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 as it sought approval for the transaction. Albertsons also seeks to recover for the time, energy and resources it invested in good faith to try to make the merger a success.

In light of the Oregon and Washington courts’ rulings enjoining the company’s proposed merger with Kroger and Kroger’s failure to close the merger before the contractual deadline to do so, Albertsons has notified Kroger of its decision to terminate the merger agreement. This termination entitles Albertsons to an immediate $600 million termination fee and removes contractual constraints on Albertsons’ ability to pursue other strategic opportunities.

In addition to the $600 million termination fee, Albertsons is entitled to relief reflecting the multiple years and hundreds of millions of dollars it devoted to obtaining approval for the merger, along with the extended period of unnecessary limbo Albertsons endured as a result of Kroger’s actions. Albertsons further seeks to recover certain expenses and costs.

About Albertsons Companies

Albertsons Companies is a leading food and drug retailer in the United States. As of September 7, 2024, the Company operated 2,267 retail food and drug stores with 1,726 pharmacies, 405 associated fuel centers, 22 dedicated distribution centers and 19 manufacturing facilities. The Company operates stores across 34 states and the District of Columbia under more than 20 well known banners including Albertsons, Safeway, Vons, Jewel-Osco, Shaw's, Acme, Tom Thumb, Randalls, United Supermarkets, Pavilions, Star Market, Haggen, Carrs, Kings Food Markets and Balducci's Food Lovers Market. The Company is committed to helping people across the country live better lives by making a meaningful difference, neighborhood by neighborhood. In 2023, along with the Albertsons Companies Foundation, the Company contributed more than $350 million in food and financial support, including more than $35 million through our Nourishing Neighbors Program to ensure those living in our communities and those impacted by disasters have enough to eat.

View source version on businesswire.com: https://www.businesswire.com/news/home/20241211517822/en/

For Investor Relations, contact investor-relations@albertsons.com

For Media Relations, contact media@albertsons.com or Albertsons@fgsglobal.com

Source: Albertsons Companies, Inc.

FAQ

Why did Albertsons (ACI) sue Kroger over the merger failure?

Albertsons sued Kroger for willfully breaching the merger agreement by refusing to provide adequate divestiture packages, ignoring regulators' feedback, and failing to cooperate in securing regulatory approval.

How much is Albertsons (ACI) seeking in damages from Kroger?

Albertsons is seeking billions of dollars in damages to compensate for lost share premium, decreased shareholder value, and resources invested in the failed merger.

What compensation will Albertsons (ACI) receive from the terminated merger?

Albertsons will receive an immediate $600 million termination fee and is seeking additional compensation for expenses and resources devoted to obtaining merger approval.

Which courts blocked the Albertsons-Kroger merger?

The United States District Court for the District of Oregon and the King County Superior Court for the State of Washington granted regulators' requests to block the merger.

What are the immediate implications for Albertsons (ACI) after terminating the merger?

Albertsons can now pursue other strategic opportunities without contractual constraints and will receive a $600 million termination fee.