The proposed $24.6 billion merger between Kroger and Albertsons, which would have created the largest supermarket chain in the US, has fallen apart. Albertsons withdrew from the deal on Wednesday, initiating a legal battle with Kroger over a $600 million termination fee and billions in alleged damages.
The collapse follows recent court decisions that temporarily blocked the merger. A federal judge in Oregon issued a preliminary injunction pending review by the Federal Trade Commission (FTC), while a state judge in Washington issued a permanent injunction, citing antitrust concerns. These legal roadblocks ultimately led to Albertsons’ decision to abandon the deal.
Albertsons accuses Kroger of failing to secure regulatory approval, neglecting regulators’ feedback, and rejecting stronger divestiture buyers. They allege that Kroger’s actions harmed shareholders, employees, and consumers. Kroger vehemently denies these claims, counter-accusing Albertsons of material breaches and interference throughout the merger process. The dispute now centers around the termination fee and potential legal costs.
Industry analysts express surprise at the acrimonious split, suggesting that Albertsons’ aggressive legal strategy could limit future merger opportunities. The company carries significant debt and faces underperforming stores in several markets. Without the merger, Albertsons may need to consider layoffs, store closures, or exiting specific markets, despite CEO Vivek Sankaran’s earlier assurances of a strong financial position.
Consumers could experience the fallout from the failed merger through higher prices at Albertsons, which typically charges more than Kroger and other competitors. The merger was initially proposed to counter the growing dominance of Walmart, Costco, and Amazon in the grocery sector. Kroger and Albertsons had planned to divest 579 overlapping stores to C&S Wholesale Grocers to address antitrust concerns, but this plan faced criticism from regulators and competitors.
The FTC and the states of Washington and Colorado had filed lawsuits to block the merger, arguing that it would reduce competition, leading to higher prices and lower wages for workers. They also questioned the viability of C&S Wholesale Grocers as a suitable buyer for the divested stores.
Kroger announced a $7.5 billion share buyback program following the collapse of the deal. Both companies reported recent quarterly earnings: Albertsons saw a slight revenue increase to $18.5 billion with $7.9 billion in debt, while Kroger’s revenue dipped slightly to $33.6 billion. The future of both companies, and the broader grocery landscape, remains uncertain in the wake of this failed mega-merger. The legal battles are expected to continue, with the FTC providing an update on its next steps by December 17th. Colorado’s Attorney General is also awaiting a state judge’s decision on a separate lawsuit challenging a no-poach agreement between Kroger and Albertsons.
