NEW YORK: Albertsons Cos is demanding that Kroger Co pay more than US$9bil for the collapse of what would have been the largest US grocery chain merger in history.
Lawyers for Albertsons made the demand on Monday in Delaware Chancery Court, where a two-week trial is slated later this month in a legal fight over who is to blame for the failure of the US$24.6bil deal.
The plan to combine the two largest US grocery chains was blocked by a federal court in December 2024.
Albertsons wants Judge Lori Will to find that Kroger “willfully” breached the merger agreement by failing to use “best efforts” to get regulatory approval, including a refusal to alter its plan to divest certain assets.
Kroger should pay more than US$9.3bil, which includes a premium stockholders would have gotten if the deal had closed, and a US$600mil termination fee plus US$75mil in interest and additional costs, Albertsons said.
Under the terms of the agreement, Kroger had agreed “to remove any antitrust impediment to the merger – with no limit except that Kroger did not have to divest more than 650 stores,” Albertsons said in the court filing.
“Kroger willfully breached these maximalist contractual commitments.
“Kroger wanted the merger but only on its own terms.”
Kroger, which defended the merger in a losing antitrust fight with the US Federal Trade Commission (FTC), said it doesn’t owe Albertsons any money.
It claims Albertsons failed to comply with its obligations under the merger agreement – so isn’t entitled to a termination fee – and that the demand for billions in additional damages was based on a “far-fetched” legal theory involving estimated taxes on the deal premium.
In a separate court filing on Monday, Kroger said it “kept its end of the bargain”, spent more than a billion dollars and “countless hours of personnel time in pursuit of the deal”.
The grocery store chain said it had an economic incentive to close the deal, but there was nothing more it could do to win over antitrust regulators, which would have required divesting far more than 650 stores.
If Albertsons wins its case, its stockholders would benefit.
The publicly-listed company counts private equity firm Cerberus Capital Management as its largest shareholder, with a more than 30% stake at the end of June.
The merger would have seen Kroger, the largest US grocery chain, acquire the No. 2 grocer, Albertsons, with the aim of boosting competition against Amazon.com Inc, Walmart Inc and other non-unionised rivals.
To win regulatory approval, the companies agreed to sell hundreds of stores to C&S Wholesale Grocers Inc.
But a federal judge in December 2024 blocked the deal after ruling in favour of the FTC, which argued the divestiture plan was insufficient to address antitrust concerns. Albertsons then terminated the deal and sued Kroger, accusing it of “willfully” violating the merger agreement by refusing to sell off the required assets.
Albertsons said Kroger prioritised profit targets at the expense of ensuring regulatory approval.
“Kroger inflexibly held to its pre-merger targets, even refusing to divest assets specifically identified by the regulators as key to the success of its chosen divestiture buyer,” Albertsons said.
“Despite clear feedback from regulators, clear advice from its own counsel and economists, and repeated pleas from Albertsons and the divestiture buyer, C&S Wholesale Grocers, Kroger stuck to its failing lowball strategy right through the litigation that ended the deal.”
Kroger responded that it “relied on the advice of its antitrust counsel” in determining how to construct the divestiture packages and whether they’d be sufficient to sway regulators.
Kroger accused Albertsons of undermining its divestiture proposal to regulators.
It claimed Albertsons secretly worked with C&S to get regulators to require Kroger to divest more stores than needed.
Attorneys for Kroger warned that “crediting Albertsons’ endless second-guessing” of Kroger’s actions “would convert the contractual control over regulatory strategy that is traditionally accorded to the acquiror into a guaranteed payout for the target company should regulatory efforts fall short”. — Bloomberg
