Kroger Files Legal Response, Brings Counterclaims Against Albertsons

Rhea-AI Summary

Kroger (NYSE: KR) has filed legal counterclaims against Albertsons in the Delaware Court of Chancery regarding their terminated merger agreement from December 2024. The filing alleges that while Kroger worked to obtain regulatory approval, Albertsons secretly collaborated with C&S Wholesale Grocers to undermine Kroger's regulatory strategy.

The misconduct was revealed during antitrust trials through the cross-examination of Susan Morris, Albertsons's CEO designate, who allegedly used personal communications to advance a separate strategy with C&S. This led C&S to criticize their agreed-upon divestiture package, causing regulators to doubt C&S's adequacy as a buyer.

Kroger contests Albertsons's claim to the $600 million termination fee and additional damages. The counterclaims also reveal Albertsons's 'Plan B' strategy to sue Kroger if the merger failed. Kroger is now seeking damages to recover its investment in obtaining regulatory approval while Albertsons allegedly worked against it.

Positive

• Company reported quarterly results ahead of expectations
• Positive business momentum reported for 2025
• Continuing to deliver lower prices and increasing wages

Negative

• Legal expenses and resources required for counterclaims against Albertsons
• Failed merger attempt after significant investment in regulatory approval process
• Potential reputational impact from public legal battle

Insights

Legal Expert

This legal dispute between Kroger and Albertsons presents significant corporate litigation with material financial stakes. Kroger's counterclaims contain serious allegations of contractual breaches that could invalidate Albertsons' claim to the $600 million termination fee. The core allegation – that Albertsons executives conducted a "surreptitious campaign" undermining the merger while contractually obligated to support it – represents a potentially strong legal position.

Particularly noteworthy is Kroger's assertion that Albertsons executives used personal communication channels to advance a contradictory regulatory strategy with C&S Wholesale Grocers. This alleged conduct was apparently significant enough to be cited by the Washington court when blocking the merger. Such evidence could substantially strengthen Kroger's position that Albertsons materially breached the "best efforts" clause common in merger agreements.

The timing elements are legally significant: Albertsons allegedly prepared a litigation "Plan B" while simultaneously bound by contractual obligations to support the merger. Filing a 140-page complaint immediately after court decisions suggests substantial pre-planning, potentially supporting Kroger's narrative that Albertsons had abandoned genuine efforts to complete the transaction.

This case will likely center on evidence of communications between Albertsons and C&S, the contractual interpretation of "best efforts" provisions, and whether Albertsons' actions constituted material breaches. Delaware's Chancery Court, known for sophisticated corporate contract interpretation, will evaluate whether Albertsons' conduct legitimately forfeited its right to the termination fee while determining if Kroger can recover its regulatory pursuit investments.

Financial Analyst

This legal development carries notable financial implications for Kroger. Successfully defending against Albertsons' claims could save Kroger the $600 million termination fee – approximately 1.4% of its $42.9 billion market capitalization. More significantly, Kroger's counterclaims for damages could potentially recover substantial merger-related expenses, though quantifying these costs remains speculative without disclosed figures.

The litigation itself represents a double-edged financial dynamic: while legal costs will increase expenses in coming quarters, the potential $600 million liability avoidance represents a meaningful financial upside. Importantly, Kroger appears to be maintaining operational focus despite the litigation distraction, with the company explicitly noting "quarterly results ahead of expectations and positive momentum in 2025."

This case highlights the substantial transaction costs and financial risks associated with major merger attempts in highly regulated industries. The merger's failure after significant investment in regulatory approval processes demonstrates how regulatory hurdles create material financial exposures even for industry leaders.

From a market perspective, this development reinforces that Kroger must continue executing its standalone growth strategy rather than relying on transformative M&A. The company's statement about "significant investments that are delivering lower prices and increasing wages" suggests management is emphasizing organic growth initiatives and operational improvements. The litigation outcome will impact short-term financial performance, but Kroger's fundamentals appear solid based on their recent results and forward-looking statements about "sustainable future growth and compelling total shareholder returns."

CINCINNATI, March 25, 2025 /PRNewswire/ -- The Kroger Co. (NYSE: KR) today announced that it has filed its answer and counterclaims to the complaint brought by Albertsons in the Delaware Court of Chancery, in connection with the previous merger agreement between the two companies, which was terminated in December 2024.

As detailed in the court filing, while Kroger was working diligently to seek regulatory approval and close the merger, Albertsons was engaging in a secret and misguided campaign, together with C&S Wholesale Grocers, the divestiture buyer, to pursue its own regulatory strategy, which ultimately undermined Kroger's efforts. Albertsons's misconduct shockingly came to light in the middle of the antitrust trials under government cross examination of Susan Morris, Albertsons's recently promoted CEO designate. As a result of its misconduct, Albertsons is not entitled to the $600 million termination fee under the terms of the parties' merger agreement, nor is Albertsons entitled to the other damages it seeks.

Kroger continues to capitalize on its business model, generating differentiated value for all stakeholders. This includes significant investments that are delivering lower prices and increasing wages, while further improving the experience for an expanding customer base. The Company recently reported quarterly results ahead of expectations and positive momentum in 2025, as it drives sustainable future growth and compelling total shareholder returns.

Counterclaims Background

Albertsons's Surreptitious Campaign

While Kroger was working diligently to seek regulatory approval and close the merger in accordance with the merger agreement, Albertsons executives (including Ms. Morris) were secretly working with C&S to supplant and undermine Kroger's regulatory strategy. The misconduct included Ms. Morris's secret communications with C&S's CEO and others, utilizing personal emails and cell phones to advance Albertsons's strategy. This strategy resulted in C&S criticizing the divestiture package that C&S had voluntarily agreed to, which in turn caused regulators to believe that C&S was an inadequate divestiture buyer. The Washington court cited these very communications when it ultimately blocked the merger.

Plan B

The counterclaims also describe Albertsons's development of a 'Plan B' to sue Kroger in the event the merger failed to close, by manufacturing a paper-trail over many months including unfounded allegations by Albertsons that are directly contrary to the under-oath testimony that their executives gave during the antitrust trials.

Kroger was prepared, in the event of adverse court decisions, to pursue all remaining options to close the merger. But, within hours of the court decisions blocking the merger, Albertsons terminated the merger agreement and filed a 140-page complaint against Kroger. These actions ensured that the merger would never close, and further demonstrated that Albertsons had long before shifted its focus towards the litigation that is now pending between the parties, abandoning its contractual obligation to use best efforts to close the transaction.

Through its counterclaims, Kroger is affirmatively seeking damages from Albertsons as a result of its willful misconduct and material breaches of the merger agreement. Kroger will seek to recover the investment it made to obtain regulatory approval for the merger while Albertsons was surreptitiously working to undermine it.

About Kroger
At The Kroger Co. (NYSE: KR), we are dedicated to our Purpose: To Feed the Human Spirit™. We are, across our family of companies nearly 420,000 associates who serve over 11 million customers daily through a seamless digital shopping experience and retail food stores under a variety of banner names, serving America through food inspiration and uplift, and creating #ZeroHungerZeroWaste communities. To learn more about us, visit our newsroom and investor relations site.

This press release contains certain statements that constitute "forward-looking statements" about claims and counterclaims involved in the litigation between the Company and Albertsons regarding the terminated transaction with Albertsons, as well as Kroger's financial position and the future performance. These statements are based on management's assumptions and beliefs in light of the information currently available to it. Such statements are indicated by words or phrases such as "continues," "drives," "growth," "expectations," "seek," and "will," and variations of such words and similar phrases. Various uncertainties and other factors could cause actual results to differ materially from those contained in the forward-looking statements. These include the specific risk factors identified in "Risk Factors" in our annual report on Form 10-K for our last fiscal year and any subsequent filings, well as the following:

Kroger's ability to achieve sales, earnings, incremental FIFO operating profit, and adjusted free cash flow goals may be affected by: labor negotiations; potential work stoppages; changes in the unemployment rate; pressures in the labor market; changes in government-funded benefit programs; changes in the types and numbers of businesses that compete with Kroger; pricing and promotional activities of existing and new competitors, and the aggressiveness of that competition; Kroger's response to these actions; the state of the economy, including interest rates, the inflationary, disinflationary and/or deflationary trends and such trends in certain commodities, products and/or operating costs; the geopolitical environment including wars and conflicts; unstable political situations and social unrest; changes in tariffs; the effect that fuel costs have on consumer spending; volatility of fuel margins; manufacturing commodity costs; supply constraints; diesel fuel costs related to Kroger's logistics operations; trends in consumer spending; the extent to which Kroger's customers exercise caution in their purchasing in response to economic conditions; the uncertainty of economic growth or recession; stock repurchases; changes in the regulatory environment in which Kroger operates, along with changes in federal policy and at regulatory agencies; Kroger's ability to retain pharmacy sales from third party payors; consolidation in the healthcare industry, including pharmacy benefit managers; Kroger's ability to negotiate modifications to multi-employer pension plans; natural disasters or adverse weather conditions; the effect of public health crises or other significant catastrophic events; the potential costs and risks associated with potential cyber-attacks or data security breaches; the success of Kroger's future growth plans; the ability to execute our growth strategy and value creation model, including continued cost savings, growth of our alternative profit businesses, and our ability to better serve our customers and to generate customer loyalty and sustainable growth through our strategic pillars of fresh, our brands, personalization, and seamless; the outcome of litigation matters, including those relating to the terminated transaction with Albertsons; and the risks relating to or arising from our opioid litigation settlements, including the risk of litigation relating to persons, entities, or jurisdictions that do not participate in those settlements. Our ability to achieve these goals may also be affected by our ability to manage the factors identified above. Our ability to execute our financial strategy may be affected by our ability to generate cash flow.

Kroger assumes no obligation to update the information contained herein unless required by applicable law. Please refer to Kroger's reports and filings with the Securities and Exchange Commission for a further discussion of these risks and uncertainties.

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SOURCE The Kroger Co.

FAQ

What legal action has Kroger (KR) taken against Albertsons regarding the failed merger?

Kroger filed counterclaims in Delaware Court of Chancery, contesting the $600M termination fee and seeking damages for Albertsons's alleged misconduct in undermining the merger's regulatory approval.

How did Albertsons allegedly sabotage the Kroger (KR) merger deal?

Albertsons executives secretly communicated with C&S Wholesale Grocers using personal emails and phones, leading C&S to criticize the agreed-upon divestiture package and undermining regulatory approval.

What is Kroger (KR) seeking in its counterclaims against Albertsons?

Kroger is seeking to recover its investment made in obtaining regulatory approval and disputes Albertsons's claim to the $600M termination fee and additional damages.

What was Albertsons's 'Plan B' in the Kroger (KR) merger agreement?

Albertsons developed a 'Plan B' to sue Kroger by creating a paper trail of unfounded allegations that contradicted their executives' under-oath testimony during antitrust trials.