Albertsons shakes off $24.6bn Kroger merger, sues for billions over alleged breach

Albertsons Companies, Inc. (NYSE: ACI) announced on December 11, 2024, the termination of its failed $24.6 billion merger agreement with The Kroger Co. (NYSE: KR), citing Kroger’s inability to secure regulatory approval. The decision comes after federal court injunctions blocked the deal, which Albertsons claims resulted from Kroger regulatory failure.

The U.S. District Court for Oregon and the King County Superior Court of Washington ruled against the merger on December 10, highlighting antitrust concerns. Albertsons CEO Vivek Sankaran expressed disappointment over the courts’ decisions, noting the company’s efforts to uphold the terms of the failed merger agreement.

The collapse has spurred Albertsons legal action against Kroger in Delaware’s Court of Chancery. The lawsuit alleges that Kroger repeatedly refused to divest assets necessary for antitrust approval and ignored feedback from regulators, which led to the antitrust legal scrutiny derailing the deal. Albertsons is seeking billions of dollars in damages to account for the shareholder financial impact, resources spent, and opportunities lost due to the prolonged approval process.

Albertsons General Counsel Tom Moriarty accused Kroger of prioritizing its financial self-interest over the deal’s success. He underscored how Kroger’s alleged actions resulted in a shareholder financial impact and prevented Albertsons from moving forward with other strategic opportunities.

A New Chapter for Albertsons

While the failed merger agreement marks a significant turning point, Albertsons is pivoting to strengthen its standalone business performance. The company announced plans to increase its quarterly cash dividend by 25% to $0.15 per share and authorized a $2 billion share repurchase program. These initiatives align with Albertsons’ broader growth strategy under its “Customers for Life” framework.

The Customers for Life strategy emphasizes enhancing customer experiences through investments in omnichannel services, loyalty programs, and real estate optimization. Albertsons has outlined an ambitious roadmap that includes leveraging its standalone business performance to drive shareholder value and operational growth.

Cerberus Capital Management, Albertsons’ largest shareholder, voiced confidence in the grocer’s potential. Despite the merger’s failure, Cerberus reiterated its long-term commitment, citing Albertsons’ undervaluation and the strength of its growth strategy.

Lawsuit Highlights Antitrust Hurdles

The lawsuit underscores the challenges of navigating antitrust legal scrutiny in the grocery sector. The merger, announced in October 2022, was intended to create a powerhouse capable of competing with Walmart and Amazon. However, Albertsons claims that Kroger regulatory failure in offering adequate divestitures doomed the deal.

Albertsons noted that Kroger’s insufficient efforts led to federal court injunctions, leaving Albertsons to endure prolonged uncertainty. The termination agreement entitles Albertsons to a $600 million breakup fee, offering some relief as it pivots towards its Customers for Life strategy.

Looking Ahead

Albertsons is focused on leveraging its standalone business performance to chart a successful future. With a renewed emphasis on innovation, shareholder returns, and operational efficiency, the company aims to turn the page on the challenges posed by its failed merger agreement and implement its long-term growth strategy effectively.