What Killed a $20 Billion Grocery Deal? Albertsons Says Kroger Did
In unsealed complaint, Albertsons claims that Kroger’s hubris and reluctance to divest of stores sank their merger; Kroger has said its rival breached the agreement
Within months of Kroger KR 0.15%increase; green up pointing triangle announcing a $20 billion deal to acquire rival Albertsons ACI 1.74%increase; green up pointing triangle, Kroger made missteps that Albertsons said ultimately sank the supermarket megadeal.
A tie-up between the two largest U.S. grocery-store operators was bound to draw scrutiny from government antitrust watchdogs and consumers angry about rapidly climbing food prices. Albertsons officials now allege that Kroger’s approach to the federal antitrust review further stacked the odds against the deal, which was blocked last week by a federal judge.
In court documents unsealed Monday, Albertsons said Kroger showed reluctance to divest itself of a larger number of stores, a move aimed at preserving competition. Kroger executives ignored advice on how to assuage regulators’ antitrust concerns, and disregarded feedback about the deal from the Federal Trade Commission that could have potentially avoided a trial, Albertsons said.
Lawyers for Albertsons accused Kroger of losing interest in the deal after a pandemic-fueled surge in its profits began to cool, and its stock price declined following the October 2022 merger announcement.
“Kroger derailed the merger after suffering a classic case of buyer’s remorse,” according to the complaint, which seeks at least $6 billion in damages.
Kroger had no comment. The company said last week after Albertsons filed the suit that the claims were baseless and without merit. A Kroger spokeswoman has said that Albertsons repeatedly breached their merger agreement and that the suit is an attempt to deflect responsibility and seek payment.
Albertsons filed the lawsuit in Delaware chancery court on Dec. 11, less than 24 hours after the federal court ruling. Albertsons said that its stockholders face a loss of a merger premium valued at roughly $6 billion and that the deal froze Albertsons’s ability to make strategic decisions for the past two years.
Kroger earned more than $2.2 billion in annual profit in its latest fiscal year on about $150 billion in revenue, while Albertsons reported a $1.3 billion profit on about $80 billion in revenue.
Kroger and Albertsons pitched their deal as creating a bigger competitor to megaretailers such as Walmart and Amazon. To address competition concerns the companies offered to sell 579 stores to grocery distributor C&S Wholesale Grocers, but the FTC earlier this year sued to block the deal, claiming that the diminished competition would lead to higher grocery prices for consumers.
Kroger took the lead on efforts to secure government approval of the deal, according to the companies’ merger agreement. Publicly, Albertsons supported Kroger’s antitrust remedies and offered up some of its top executives to lead C&S’s new grocery business that would be built on the divested stores.
“I think they have the fundamental capability and history and the wherewithal to do it,” said Albertsons Chief Executive Officer Vivek Sankaran about C&S during the federal antitrust trial in Oregon earlier this year.
Albertsons now alleges that Kroger ignored more qualified grocery-store divestiture buyers and that Kroger’s insistence on only one company taking control of divested stores limited the range of purchasers.
Before publicly announcing the merger, the CEOs of Kroger and Cerberus Capital Management, the private-equity firm that owns a nearly 30% stake in Albertsons, made a handshake deal that the Cincinnati-based grocer would divest itself of 650 stores in the transaction, according to Albertsons’s lawsuit. That tally was never reached.
When Kroger first met with FTC enforcers in December 2022, it proposed to shed 238 stores, the suit said. Kroger in September 2023 upped its divestiture total to more than 400 stores.
In February meetings with the FTC, Kroger pitched divesting itself of 541 stores, a proposal that Albertsons warned was insufficient. Kroger later bumped it to 579 locations after the FTC sued to block the deal.
Albertsons also accused Kroger of wanting to dump its weakest-performing stores rather than choosing locations to shed that would best alleviate the FTC’s concerns about one company owning a big chunk of supermarkets in some regions.
In a September 2023 email exchange, Kroger CEO Rodney McMullen directed that a specific Seattle store be removed from the divestiture list because “this store has real estate that is worth a lot,” Albertsons’s suit said.