Albertsons Terminates $25 Billion Merger Bid with Kroger

By Jody Godoy
(Reuters) – Albertsons terminated its $25 billion bid to merge with Kroger (NYSE:KR) on Wednesday after courts blocked the deal. The company is suing Kroger, alleging a breach of contract that led to the deal's failure.

The formal termination ends a two-year effort to combine the chains, which regulators argued would lead to higher prices for shoppers. Albertsons (NYSE:ACI) stated that they are suing due to Kroger's failure to take necessary actions to get the merger approved.

> "Given the recent federal and state court decisions to block our proposed merger with Kroger, we have made the difficult decision to terminate the merger agreement," said Albertsons CEO Vivek Sankaran.

Albertsons is seeking billions in damages, along with a $600 million termination fee.

Kroger labeled the claims baseless and intends to defend against them, arguing that it is an attempt by Albertsons to deflect responsibility for breaches of the agreement and seek an undeserved break fee.

Albertsons operates around 2,300 stores and hinted at potential store closures and layoffs if the deal was blocked. Nonetheless, the company expressed optimism on Wednesday, emphasizing recent investments in new technology.

On Tuesday, two courts ruled against the merger, siding with federal and state antitrust regulators who contended that the merger would reduce competition, raise prices, and diminish workers' leverage.

The deal symbolized rising grocery costs, facing significant regulatory opposition. U.S. food prices have surged by 25% over the last four years, with grocery bills remaining a significant concern for consumers.

The U.S. Federal Trade Commission, alongside attorneys general from eight states and the District of Columbia, sued to block the deal. Washington state had a separate lawsuit, and judges ruled that the merger would unlawfully diminish competition.

Kroger defended the merger, asserting it would lower prices at Albertsons, where prices are 10-12% higher than at Kroger. The merged entity would provide cost savings and a greater customer base to enhance Kroger's data consulting revenues.

The court’s rulings resulted from Kroger’s refusal to heed regulators' feedback and to divest assets necessary for deal clearance.

Had the merger proceeded, Kroger would have owned approximately 5,000 U.S. stores. They proposed selling 579 stores to preserve competition, particularly in Western U.S. states where both chains operate. However, U.S. District Judge Adrienne Nelson expressed doubts about the viability of the proposed buyer, C&S Wholesale Grocers, as a competitor.

Albertsons claimed Kroger rejected stronger candidates for selling the stores.

Additionally, Albertsons announced an increase in its quarterly dividend to 15 cents per share from the current 12 cents and approved $2 billion in share buybacks, including previously authorized repurchases.

Albertsons shares rose 3.4% on Wednesday, whereas Kroger shares showed slight declines.