Kroger Fights Suit by Albertsons Over Failed Deal

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Kroger Co. is fighting back against a lawsuit brought by Albertsons Cos. over its failed $24.6 billion takeover of the rival grocery chain, escalating a dispute that began after U.S. antitrust enforcers succeeded in blocking the deal last year.

Albertsons is trying to extract billions of dollars, including a $600 million termination fee, with baseless claims that Kroger tried to undermine the deal, attorneys for Kroger wrote in a filing that was unsealed on March 25 in the Delaware Court of Chancery.

According to Kroger, private equity firm Cerberus Capital Management, the biggest shareholder in Albertsons, was incentivized to push the lawsuit to give “Albertsons the cash it desperately needed to survive, and Cerberus the opportunity to realize a sufficient return on its decades-long investment.”

Kroger is seeking damages from Albertsons for the money it spent trying to obtain regulatory approval. The amount wasn’t disclosed in the filing.

An Albertsons supermarket in Upland, Calif. (Kyle Grillot/Bloomberg News)

An Albertsons spokesman said March 25 that Kroger’s “weak claims” are a tactic to distract from Kroger’s failures to carry out its contractual obligations under the deal agreement, avoid paying the damages it owes and its ongoing executive leadership issues. Albertsons was committed to the success of the combination, but Kroger did not hold up its end of the bargain, the spokesman said, adding that the company looks forward to presenting its case in court.

Kroger and Albertsons rank Nos. 26 and 42, respectively, on the Transport Topics Top 100 list of the largest private carriers in North America, and Kroger, Albertsons and C&S rank Nos. 3, 5 and 9, respectively, on the TT grocery carriers list.

Kroger agreed two years ago to acquire Albertsons, with the goal of better competing against Amazon.com Inc., Walmart Inc. and other non-unionized rivals. The retailers also agreed to sell hundreds of stores to C&S Wholesale Grocers Inc. to secure regulatory approval.

But the U.S. Federal Trade Commission sued to block the deal on antitrust grounds, arguing that the divestiture plan wasn’t sufficient.

A federal judge blocked the deal in December, concluding that selling some stores wouldn’t restore competition and would put C&S at a significant disadvantage. Following the ruling, Albertsons was first to terminate the deal.

After the deal was blocked, Albertsons filed its lawsuit seeking billions of dollars in damages claiming that Kroger didn’t exercise “best efforts” to win regulatory approval.

The grocery chain accused Kroger of “willfully” violating the merger agreement by refusing to divest assets required for antitrust approval, ignoring regulator feedback and refusing to accept stronger suitors for the stores being divested.

Kroger has denied the allegations and said it made every effort to try to close the deal, including considering alternative strategies such as filing appeals and holding discussions with the incoming administration.

In its filing March 25, Kroger also accused Albertsons of violating the agreement and undermining its strategy to obtain regulatory approval.

Kroger said that Albertsons became more skeptical that the acquisition would close after regulatory pushback, which led it to “take matters into its own hands.”

Albertsons secretly worked with C&S to pressure Kroger to divest more stores than was agreed upon by the two companies, according to the filing. The company urged C&S to tell regulators that it needed more stores to effectively compete, believing that approach would make the merger more likely to close, Kroger alleged. But the strategy backfired, with regulators viewing C&S as an inadequate buyer, according to the filing.

C&S didn’t immediately comment on the Kroger filing.

Meanwhile, Albertsons came up with a “Plan B” in case the deal failed, compiling a litigation record against Kroger, attorneys for Kroger wrote. “This litigation strategy was, at its core, a business strategy,” the attorneys wrote.

The grocers are now dueling each other in…