After court loss, Albertsons and Kroger trade accusations over demise of mega-grocery-chain deal

When Kroger and Albertsons announced plans in 2022 to team up on what would be the largest supermarket merger in U.S. history, the two grocery store chains highlighted their shared values.

Now their relationship has turned sour, with each side blaming the other for the demise of what would have been a landmark deal.

A day after a federal judge temporarily halted the merger, Albertsons said Wednesday that it’s scrapping the controversial pairing and suing Kroger, alleging that the chain failed to do enough to win over regulators.

Once partners, the grocery chains are now accusing each other of breaching the merger agreement and acting in their own interests.

The fallout between Kroger and Albertsons and the failed merger raise fresh questions about the future of their businesses and the effect on people who shop at their stores. The companies, which have a big presence in California and nationwide, banked heavily on the benefits of joining forces to better compete with the likes of Walmart, Costco and Amazon.

“Anytime you get these two companies fighting with each other, that’s money that could be used for innovation and to better position themselves in the market,” said Christine Bartholomew, a law professor at the University at Buffalo.

The legal battle between the major grocery chains is the latest development in what has been a tumultuous two years for Albertsons and Kroger as they tried to win government approval for their megamerger. In February, the Federal Trade Commission sued to block Kroger’s proposed $24.6-billion acquisition of Albertsons because of concerns that it would eliminate competition, drive up food prices and harm workers.

If the merger had been approved, the two supermarket chains would have run more than 5,000 stores in 48 states, according to the FTC’s lawsuit. Albertsons owns the well-known brands Pavilions, Safeway and Vons. Ohio-based Kroger operates Ralphs, Food4Less, Fred Meyer, Fry’s, Quality Food Centers and other popular grocery stores.

The FTC’s lawsuit set the stage for a three-week trial that kicked off in a federal courtroom in Oregon over the summer. The trial featured testimony from the grocery store chains’ executives, FTC lawyers, union leaders and antitrust experts.

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To address concerns about reducing competition, Kroger and Albertsons said they would sell more than 570 stores to C&S Wholesale Grocers. That plan included offloading 63 California stores, including some in Los Angeles and Huntington Beach.

The fate of those stores is unclear. Albertsons didn’t respond to questions about whether they planned to keep or close the California stores. During the trial, Albertsons said it might have to lay off workers and shutter stores if the merger didn’t go through.

The grocery chains, though, failed to convince U.S. District Court Judge Adrienne Nelson, who on Tuesday issued a preliminary injunction blocking the merger, finding that it would quash competition and leave consumers in many parts of the country without meaningful choices when shopping for food. Kroger and Albertsons also faced legal battles in other states, including in Washington, where a judge also blocked the deal Tuesday because of competition concerns.

Noting that Kroger and Albertsons are rivals, the federal government contended that reducing competition between the two would drive up grocery prices.

Kroger and Albertsons vowed to invest in lowering grocery prices if the merger went through, but the judge said in her ruling that courts should be skeptical of promises that can’t be enforced and “business realities” might force the grocery chains to alter these plans.

She also said in her ruling that the grocery chains might end up abandoning the merger because of the court order but it doesn’t force them to do so. “Any harms defendants experience as a result of the injunction do not overcome the strong public interest in the enforcement of antitrust law,” she said.

The judge’s decision to block the merger garnered praise from the FTC, the White House and United Food and Commercial Workers locals, which noted that Kroger and Albertsons have “wasted” billions of dollars on what is now a failed merger.

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“Now is the time for Kroger and Albertsons executives to honor their promises to consumers and workers under oath during the trials by investing in lower prices, higher wages, and other investments to improve competitiveness,” UFCW local unions, which represent more than 100,000 workers at Albertsons- and Kroger-owned stores, said in a statement.

A variety of factors including competition and worker wages can affect food prices. Tuesday’s ruling, though, suggested that the judge, who cited economic analysis from the federal government’s expert in her 71-page decision, “didn’t really buy the arguments that Kroger and Albertsons were making, that this would be good for consumers,” Bartholomew said.

The legal blows made it more risky for Kroger and Albertsons to continue the merger plan.

Shortly after the ruling, the grocery chains turned on each other.

“Kroger’s self-serving conduct, taken at the expense of Albertsons and the agreed transaction, has harmed Albertsons’ shareholders, associates and consumers,” Tom Moriarty, Albertsons’ general counsel and chief policy officer, said in a statement.

Erin Rolfes, a spokeswoman for Kroger, disputed Albertsons’ claims, calling them “baseless and without merit.”

“This is clearly an 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,” she said in a statement.

Albertsons’ lawsuit filed in the Delaware Court of Chancery is temporarily under seal, according to a statement.

The Boise, Idaho-based company is seeking a $600-million termination fee and billions of dollars in damages from Kroger as part of the lawsuit.

On Wednesday, Kroger’s stock closed up nearly 1% at $61.33, while Albertsons’ stock fell more than 1% to $18.23. Albertsons’ shares have dropped about 20% this year.