A United States District Court in Oregon has blocked the merger of The Kroger Co. and Albertsons Cos., citing the combination’s threat to grocery sector competition.
In a response, Albertsons announced it has terminated the merger agreement and filed suit against Kroger for a breach of the merger agreement, claiming Kroger had not been aggressive enough in the deal’s defense.
Kroger had promised to pass on expected cost savings when it completed the merger and stated the diversity of competition in the grocery sector for food and other household goods should be broadly considered by the court.
In response to a HomePage News inquiry, a Kroger spokesperson stated, “Through its proposed merger with Albertsons, Kroger would invest more than $1 billion in lower grocery prices, invest an additional $1 billion in higher grocery worker wages, and invest an additional $1.3 billion to improve Albertsons stores.”
The spokesperson said Kroger is “disappointed” in the court ruling, “which overlook the substantial evidence presented at trial showing that a merger between Kroger and Albertsons would advance the company’s decades-long commitment to lowering prices, respecting collective bargaining agreements and is in the best interests of customers, associates and the broader competitive environment in a rapidly evolving grocery landscape.” The Kroger spokesperson added the company is currently reviewing its options in regards to the decision. Options could include an appeal to a higher level court as part of the company’s legal defense of the merger, the spokesperson said.
The U.S. Federal Trade Commission stated its request for a preliminary injunction to prevent Kroger from acquiring Albertsons blocked what would be the largest supermarket merger in the history of the United States, valued at $24.6 billion. A group of nine state attorneys general had joined the FTC in the suit.
FTC Bureau of Competition Director Henry Liu said, “This historic win protects millions of Americans across the country from higher prices for essential groceries, from milk to bread to eggs, ultimately allowing consumers to keep more money in their pockets. This victory has a direct, tangible impact on the lives of millions of Americans who shop at Kroger or Albertsons-owned grocery stores for their everyday needs, whether that’s a Fry’s in Arizona, a Vons in Southern California, or a Jewel-Osco in Illinois. This is also a victory for thousands of hardworking union employees, protecting their hard-earned paychecks by ensuring Kroger and Albertsons continue to compete for workers through higher wages, better benefits, and improved working conditions.”
Albertsons filed its lawsuit against Kroger Co. in the Delaware Court of Chancery, citing willful breach of contract, particularly the covenant of good faith and fair dealing in securing regulatory approval of the companies’ agreed merger transaction and refusing to divest assets necessary for antitrust approval, ignoring regulator feedback, rejecting stronger divestiture buyers than the one chosen, C&S Wholesale Grocers, and failing to cooperate with Albertsons.
“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,” said Albertsons spokesperson Tom Moriarty. “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.”
Moriarty went on to say, “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.”
In a third-quarter conference call on September 9, Kroger Chairman and CEO Rodney McMullen said, as the company awaited the court rulings in the regulatory challenges to the merger, it remained confident in the facts and the strengths of its position. He noted the retail business continues to become more competitive as consumers today purchase from a wide range of formats, from Costco to Amazon to dollar stores to restaurants. Kroger remains committed to closing the merger, he emphasized at the time, because it would provide meaningful and measurable benefits for the company’s customers, associate and communities across the country.
McMullen added at the time, regardless of the legal outcome, Kroger is operating from a position of strength with a business that is more diverse than ever and a value creation model giving it with multiple ways to drive sustainable growth.
The Oregon district court announced the ruling on December 10. According to the Associated Press, U.S. District Court Judge Adrienne Nelson ruled any harm experienced by defendants Kroger and Albertstons as result of her injunction couldn’t overcome the public interest in the enforcement of antitrust law.
