By Kristin Bakker

Albertsons Companies Inc. filed a lawsuit Dec. 11 against The Kroger Co. in the Delaware Court of Chancery, bringing claims for willful breach of contract and breach of the covenant of good faith and fair dealing arising from Kroger’s failure to exercise “best efforts” and to take “any and all actions” to secure regulatory approval of the companies’ agreed merger transaction, as was required under the terms of the merger agreement between the parties, Albertsons said in a news release.

Pursuant to the Court of Chancery rules, Albertsons’ complaint against Kroger is temporarily under seal.

Albertsons operates 2,267 retail food and drug stores with pharmacies, associated fuel centers, distribution centers and manufacturing facilities across 34 states and Washington, D.C., under banners including Albertsons, Safeway, Vons, Jewel-Osco, Shaw's, Acme, Tom Thumb, Randalls, United Supermarkets, Pavilions, Star Market, Haggen, Carrs, Kings Food Markets and Balducci's Food Lovers Market.

Kroger’s $24.6 billion acquisition of Albertsons was first proposed back in October 2022 and, at that time, was expected to close in early 2024. Both companies proposed to divest several-hundred stores and select other assets to clear Federal Trade Commission competition hurdles.

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Nonetheless, FTC called the divestitures “inadequate” and sued to block the merger in February 2024, alleging that the deal is anticompetitive and would eliminate competition between Kroger and Albertsons, leading to higher prices for groceries and other essential household items for Americans, along with negatively affecting competitive wages for thousand of grocery store workers.

In August, Kroger Co. filed a motion for preliminary injunction in the U.S. District Court for the Southern District of Ohio against FTC’s administrative proceeding challenging the merger with Albertson, arguing that FTC was violating constitutional protections.

In its latest statement, Albertsons claims Kroger willfully breached the merger agreement in several key ways, including by repeatedly refusing to divest assets necessary for antitrust approval, ignoring regulators’ feedback, rejecting stronger divestiture buyers and failing to cooperate with Albertsons.

Tom Moriarty, Albertsons general counsel and chief policy officer, said, “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. 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.”

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Kroger’s conduct, Moriarty continued, “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.”

He said the current action is being taken “to enforce and preserve Albertsons’ rights and to protect the interests of our shareholders, associates and consumers,” and the company believes the case has strong merit.

The company cited recent rulings from the U.S. District Court for the District of Oregon and the King County Superior Court for the State of Washington that granted regulators’ requests to block the merger, a result Albertsons claims could have been avoided if not for Kroger’s breach of conduct.

Albertsons stated it is seeking billions of dollars in damages from Kroger to make Albertsons and its shareholders whole, as it alleges shareholders have been denied the multi-billion-dollar premium Kroger agreed to pay for Albertsons shares and have been subjected to a decrease in shareholder value while Albertsons was unable to pursue other business opportunities as it sought approval for the transaction. Albertsons said it also seeks to recover for the time, energy and resources it invested in good faith to try to make the merger a success.

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In light of the Oregon and Washington courts’ rulings enjoining the proposed merger with Kroger and failure to close the merger before the contractual deadline, Albertsons notified Kroger of its decision to terminate the merger agreement, which it claims entitles Albertsons to an immediate $600 million termination fee and removes contractual constraints on its ability to pursue other strategic opportunities.

In addition to the $600 million termination fee, Albertsons alleges it is entitled to relief reflecting the multiple years and hundreds of millions of dollars it put into obtaining approval for the merger and further seeks to recover certain expenses and costs.

Kroger’s response

In response to the lawsuit, Kroger issued its own statement on Dec. 11 saying Albertsons' claims are baseless and without merit.

Kroger said it refutes these allegations in the strongest possible terms, especially in light of Albertsons' repeated intentional material breaches and interference throughout the merger process, which we will prove in court.

The statement called the move a clear attempt to deflect responsibility following Kroger's written notification of Albertsons' multiple breaches of the agreement, and to seek payment of the merger's break fee, to which they are not entitled.

Kroger added that it went to extraordinary lengths to uphold the merger agreement throughout the entirety of the regulatory process and looks forward to responding to these claims in court, where it said the facts will make their claim abundantly clear.

The company said it has confidence in its value creation model to drive sustainable growth, and its board of directors is currently evaluating next steps that serve the best interests of Kroger's customers and associates and create value for shareholders.

Kroger operates its digital shopping experience and retail food stores under a variety of banner names.