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Jewel-Osco parent company Albertsons is calling off a merger with grocery giant Kroger after courts in Oregon and Washington blocked the deal.
Boise, Idaho-based Albertsons, the fourth largest grocery company in the country by sales volume, terminated the merger after Cincinnati-based Kroger failed to close it by the contractual deadline.
Albertsons filed a lawsuit against Kroger, the larger supermarket chain and second largest seller of groceries after Walmart, in Delaware. It alleges a willful breach of contract and breach of good faith for not taking any and all actions to secure regulatory approval.
"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. We are deeply disappointed in the courts' decisions," CEO Vivek Sankaran said.
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Albertsons owns grocery chains across the country, including longtime Chicagoland stalwart Jewel-Osco. The nearly $25 billion deal would have meant changes at Jewel-Osco's stores in Munster, Dyer, Chesterton and Crown Point.
Albertsons notified Kroger of its intent to walk away from the deal after the U.S. District Court in Oregon and the King County Superior Court in Washington issued injunctions halting the merger, which federal and state regulators opposed.
"We start this next chapter in strong financial condition with a track record of positive business performance. Over the last two years, we have invested in our core business and in new sources of revenue, while enhancing our capabilities through the rollout of new technologies," Sankaran said. "All of this has been built on a rich asset base, including our beloved brands in premium locations with substantial real estate value. These assets provide us the opportunity to optimize the acceleration of our Customers for Life strategy and other value-creating initiatives. We are excited about our agenda to create long-term value and are committed to returning cash to our stockholders both in the near term and in the future. We will be providing additional details on our plan no later than our earnings conference call in January 2025. Finally, we want to thank all our 285,000 dedicated team members for their relentless focus on taking care of our customers and communities that we serve, day in and day out."
Kroger said it was reviewing its options after an Oregon court found the merger would result in less competition and raise prices, harming consumers. The supermarket giant said it would fight the lawsuit.
"Albertsons' claims are baseless and without merit," Kroger said in response to the lawsuit. "Kroger refutes these allegations in the strongest possible terms, especially in light of Albertsons' repeated intentional material breaches and interference throughout the merger process. 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. Kroger looks forward to responding to these baseless claims in court. We went to extraordinary lengths to uphold the merger agreement throughout the entirety of the regulatory process and the facts will make that abundantly clear. We are incredibly proud of the Kroger team for how they worked through the merger process with the highest degree of integrity and commitment. We are confident in Kroger's value creation model to drive sustainable growth. Kroger's Board of Directors is currently evaluating next steps that serve the best interests of Kroger's customers and associates, and create value for shareholders."
Consumer groups, unions, state attorneys general and the Federal Trade Commission criticized the deal, saying it would result in a monopoly. Albertsons now plans to go in a different direction.
Standing on its own, it expects to see sales growth of 1.8% to 2.2% this year, pulling in more than $3.9 billion in earnings before interest, taxes, depreciation and amortization.
"This leadership team continues to transform the business and adapt to an ever-changing consumer landscape," Albertsons Board Chair Jim Donald said. "The board of directors is energized by the progress made to date and is confident in the leadership team's plans to continue driving long-term stockholder value."
Cerebus Capital Management, Albertsons' largest shareholder, said it continued to have faith in the grocery company.
"While we are disappointed with the courts' decisions, we remain confident in Albertsons' strength as a standalone company, and we believe that it is significantly undervalued in its current trading range," Cerebus said in a statement. "Accordingly, Cerberus has no intention of selling any of its shares in the Company. Cerberus initially invested in Albertsons in 2006, with additional investments in 2013 and 2015 to support significant and strategic value creation opportunities. As a long-term investor in and partner to Albertsons across multiple investments and throughout the evolution of its competitive environment, Cerberus is proud of the Company's performance and it will continue to be a strong supporter of Albertsons, its talented leadership team, and its dedicated associates."
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