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The collapse of the merger of US grocers Kroger and Albertsons shows the risks when deals go wrong

When Kroger agreed a $25bn deal to buy rival US grocer Albertsons, it hoped to pull off the largest transaction in US supermarket history. Instead it has become one of the ugliest bust-ups in recent memory in mergers and acquisitions.

The merger was blocked temporarily by judges last December, delivering a death blow to the deal. But Albertsons thinks it is still entitled to some of the Kroger bounty. A red-hot legal fight that has since erupted between the parties shines a light on how important the wording of transaction agreements is when things go wrong.

Albertsons, which is partially owned by Cerberus Capital, quickly sued Kroger after the judicial rulings for damages. It alleged that the deal’s legal defeats were the result of Kroger’s inept regulatory strategy, which violated the merger contract. “Kroger derailed the merger after suffering a classic case of buyer’s remorse,” wrote Albertsons in its lawsuit.

As such, Albertsons now demands perhaps billions of the proposed deal premium as a form of damages. Last week, Kroger filed its response, denying wrongdoing and separately alleging Albertsons was liable for its own perceived treachery in the window when the deal sought regulatory sign-off. 

“On information and belief, at the same time, Albertsons began manufacturing a ‘Plan B’ litigation record against Kroger to deflect blame and position Albertsons to sue Kroger if the Merger did not close,” Kroger wrote in its reply. Each side denies wrongdoing.

Negotiations prior to signing a deal are usually done at arms length. The tactics and strategy involved is what makes M&A so compelling. But what happens after signing is almost more interesting: two parties trying to close the transaction but for very different respective outcomes. A merger contract provides for an allocation of risk. If a deal collapses, it should set out each side’s obligations and how any penalties can be assessed. In the Albertsons case, there were some clear tensions from the start.

Albertsons says it agreed to let Kroger take the lead on regulatory approval strategy — but Kroger had to be willing to make any concession the Federal Trade Commission demanded. The only limit was that Kroger would not have to accept more than 650 store divestitures out of the 2,200 it originally agreed to buy. This led to inevitable issues. For Albertsons and its shareholders, the priority was for the deal to close, giving them cash and the chance to move on. The degree of pain in the concessions mattered less.

Divestitures were, however, painful for Kroger. Selling off parts of the chain, where there was too much overlap, could mean losing high-earning stores at cut-rate prices. Kroger ultimately agreed to divest more than 500 stores. Albertsons said that if Kroger had gone up to the contractual limit — 650 — the deal would have had the maximum chance at regulatory success.

For its part, Kroger says this deal was likely doomed no matter what it had done. The then-FTC chair Lina Khan, an antitrust hawk, did not like grocery consolidation and the company believes her agency’s tightened 2023 merger guidelines were not foreseeable in 2022 at the time of the deal’s signing. If a judge overseeing the duelling lawsuits concludes that the combination never had a chance, Albertsons’ claim for damages may not be viable. 

That would still leave a termination fee left to adjudicate. Kroger, according to the contract, owes Albertsons $600mn if the deal had not closed by late 2024. Kroger, however, claims that Albertsons was improperly communicating with a third company, C & S Wholesale, the putative buyer of the divested Albertsons stores. Kroger alleges C & S was trying to take advantage of the regulatory review to get as many stores as it could. Kroger will attempt to show the court that Albertsons violated its own obligations to support it in divestitures and that it should thus not even get the termination fee.

According to the court filings, the two heavyweights of the transaction — Kroger’s longtime chief executive Rodney McMullen and the Cerberus co-founder Stephen Feinberg — had, in 2022, personally negotiated the crucial divestiture requirement clause that is at the centre of the current legal dispute. Their testimony in any coming court case would be riveting.

In retrospect, whatever the agreed-upon risk allocation in this deal, it seems hard to believe today that both Kroger and Albertsons thought rolling the dice on this transaction was a wager worth taking.

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Suppliers and domestic manufacturers are rushing to move copper into the U.S. ahead of potential import taxes

Copper prices in the U.S. have surged ahead of those in the rest of world and hit a record last week, a sign the mere threat of tariffs is lifting costs for domestic manufacturers.

Benchmark U.S. copper futures ended Friday at $5.1125 a pound, up 28% this year. That compares with a 13% gain to $9,795 a metric ton—or about $4.44 a pound—on the London Metal Exchange, which is the global trading hub.

It is an unprecedented gap in prices that have otherwise moved for decades in near lockstep.

Copper suppliers and domestic manufacturers that consume it are rushing to move the metal into the U.S. ahead of import taxes that have been threatened by President Trump.

Copper is used in manufacturing everything from automobiles to mobile phones and in construction, where it is used to convey electricity and water in wires and pipes. Consumption surged in recent decades as China modernized and has lately gotten a boost from the growth in renewable energy production and the boom in data-center construction.

U.S. copper futures have been the top performer among major commodities in the first quarter. Prices for the industrial metal last week topped the record set in May but have since pulled back. Copper’s gains have outpaced the 24% rise in lumber futures, which was also fueled by uncertainty over tariffs.

The price gap in the copper market has opened a lucrative window for traders to buy abroad and deliver to panicked U.S. buyers.

The cancellation rate of warrants on the LME, which signifies buyers’ intent to take physical delivery of their copper stored in the exchange’s warehouses, has lately been about five times what it was over the prior year, according to Morgan Stanley analysts.

Meanwhile, Chinese smelting costs have plunged—and even occasionally turned negative. That means copper processing facilities there are having such a hard time finding raw copper that they are willing to lose money to get enough material to keep running, said Steve Schoffstall, director of ETF product management at Sprott Asset Management.

Those are signs that a flood of copper is flowing out of warehouses around the world and headed stateside.

A similar trans-Atlantic trend has played out recently in the gold market, which is also bracing for tariffs. And the market dynamics have shades of Europe’s scramble for cargoes of liquefied natural gas following Russia’s 2022 invasion of Ukraine, which had tankers making U-turns midocean.

“Copper that might have been destined for other parts of the world is now being rerouted to the U.S. to take advantage and arbitrage that premium,” said Schoffstall, whose firm runs funds that buy and hold copper and invest in mining companies.

Earlier this month, Trump invoked the Defense Production Act with an executive order aimed at boosting the domestic output of minerals, including copper.

In February, he ordered the Commerce Department to open an investigation under Section 232 of the Trade Expansion Act, which covers national security threats, and examine copper imports. He has also signed an order advancing a 211-mile private industrial road into Alaskan mining country.

Beyond that, Trump has mentioned copper as a target of tariffs, without offering many details. He imposed a 25% levy on aluminum and steel and has threatened broad 25% tariffs on imports from Canada and Mexico, both big suppliers to the U.S.

“Investors aren’t waiting around to find out what the tax could be,” said Adam Turnquist, chief technical strategist for LPL Financial.

Glencore, one of the world’s largest copper producers, estimates the global copper supply must grow by about one million metric tons a year through 2050 to meet rising demand. That would require annually adding production equivalent to the world’s largest copper mine, Chile’s Escondida. Even if such rich deposits are found, it can take decades for mines to move from discovery to production—nearly three, on average, in the U.S.

The expected imbalance between supply and demand has analysts and traders optimistic about the long-term prospects for copper prices.

Economic stimulus in China and better-than-expected economic data in Europe bode well for near-term copper demand. Yet analysts say that since the recent price jump reflects demand being pulled forward, prices are likely to decline later this year regardless of whether Trump implements tariffs.

“In fact, if U.S. tariff policy starts to have an increasingly negative impact on the U.S. economy, demand concerns could put additional pressure on prices,” Commerzbank analyst Thu Lan Nguyen wrote in a note to clients.

England’s road-building budget cut by 5%

Allocation to National Highways is lower than current year

Ministers have quietly cut England’s road-building and repair budget for the coming year, with a £4.8bn funding pot for major highways being around 5 per cent lower than the current allocation. 

Sir Keir Starmer declared that the sum announced last week for National Highways would “deliver vital road schemes and maintain major roads across the country to get Britain moving”. 

But the figure for the year 2025-26 is lower than the £5.07bn the agency receives in the current financial year, according to details published in the agency’s budget, industry figures said.

National Highways — which was previously called Highways England and deals with major roads — usually receives funding for five-year regulatory periods set by the transport department. The current five-year period concludes at the end of this month, while the next will not begin until April 2026. The £4.8bn was a one-year settlement to bridge the gap. 

One government official admitted that the 2024-25 figure was higher than that for the coming year — but he stressed the £4.8bn figure was still higher than the average of £4.6bn from the current five-year programme that is about to end. 

“Funding will fluctuate year on year as schemes are in different phases of delivery,” he said.

The Department for Transport also highlighted the £4.6bn figure, and said the “interim funding is to progress existing road schemes such as the A428 Black Cat” — a reference to a roundabout project in Bedfordshire on a crucial road system linking Milton Keynes and Cambridge.

It added: “We are committed to delivering road infrastructure which boosts growth and connectivity, and are working on the next multiyear road investment strategy for a long-term approach to achieve this.”

Ministers also this week announced a “record” £1.6bn fund for councils to help fix local potholes. Transport department officials said this was more generous than in previous years, but were unable to give equivalent data because of the way the figure is calculated.

Liberal Democrat local government spokesperson Vikki Slade called the cuts to National Highways’ budget “shocking”.

She said: “Our roads are crumbling and we are in the midst of a pothole pandemic. The Conservatives slashed funding for our transport and maintenance works. The Labour Government seem content to follow the Conservatives’ terrible record and hope no one notices.”

Noble Francis, economics director at the Construction Products Association, said that road building had declined over the past three years, and the industry is expecting another fall this year after the government delayed its planned roads investment strategy and cut projects including the Stonehenge Tunnel in the last Budget.

“The government keeps talking about investment and growth but cutting road projects isn’t the way to deliver that. What is needed is government investment that will give the private sector the confidence to invest in jobs and technological innovation,” he said.

Stephen Glaister, emeritus professor of transport at Imperial College, said he was disappointed by the cuts given that roads carry 90 per cent of freight and 90 per cent of passengers in the UK.

“Correctly chosen road schemes offer some of the most productive investment available,” he said. “Congestion and poor road maintenance are very damaging to economic growth but both this government and the previous have delayed the five year road strategy, which threatens confidence.”

The AA said that private motorists contribute £43bn a year in tax to the Treasury, according to its calculations.

“Cancelling road projects and not reducing congestion hits haulage efficiency and therefore creates a drag on UK business. That is at odds with government ambitions to improve economic growth.”