Albertsons Companies, Inc. today announced it has exercised its right to terminate its merger agreement with Kroger after the U.S. District Court in Oregon and the King County Superior Court for the State of Washington issued injunctions with respect to the proposed merger on December 10.
In addition, it announced that it is suing Kroger. In the court documents, Albertsons claims Kroger refused to offer an adequate divesture package and repeatedly ignored regulators’ concerns, causing the merger with Albertsons to be blocked.
Vivek Sankaran, CEO, Albertsons comments: “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.”
Sankaran continues, “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. 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.”
Sankaran concludes, “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.”
The Kroger lawsuit was filed today in the Delaware Court of Chancery, bringing claims for willful breach of contract. The documents allege that Kroger breached the covenant of good faith and fair dealing arising from its failure to exercise “best efforts” and to take “any and all actions” to secure regulatory approval of the companies’ agreed merger transaction, as was required of Kroger under the terms of the merger agreement between the parties. Pursuant to the Court of Chancery rules, Albertsons’ complaint against Kroger is temporarily under seal.
Albertsons says that Kroger willfully breached the Merger Agreement in several key ways, including by repeatedly refusing to divest assets necessary for antitrust approval, ignoring regulators’ feedback, rejecting stronger divestiture buyers, and failing to cooperate with Albertsons.
"Albertsons’ claims are baseless and without merit. Kroger refutes these allegations in the strongest possible terms, especially in light of Albertsons’ repeated intentional material breaches and interference throughout the merger process," a Kroger spokesperson says.
"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," the spokesperson continues.
"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," finishes the spokesperson.
Tom Moriarty, Albertsons’ general counsel and chief policy officer, said: “A successful merger between Albertsons and Kroger would have delivered meaningful benefits for America's consumers, Kroger’s and Albertsons’ associates, and communities across the country. Rather than fulfill its contractual obligations to ensure that the merger succeeded, Kroger acted in its own financial self-interest, repeatedly providing insufficient divestiture proposals that ignored regulators’ concerns. Kroger’s self-serving conduct, taken at the expense of Albertsons and the agreed transaction, has harmed Albertsons’ shareholders, associates, and consumers. We are disappointed that the opportunity to realize the significant benefits of the merger has been lost on account of Kroger’s willfully deficient approach to securing regulatory clearance.”
Moriarty continues: “We are taking this action to enforce and preserve Albertsons’ rights and to protect the interests of our shareholders, associates and consumers. We believe strongly in the merits of our case and look forward to presenting it to the Court to hold Kroger responsible for the harm it has caused.”
Albertsons’ claims against Kroger are reportedly confirmed by the recent rulings from the U.S. District Court for the District of Oregon and the King County Superior Court for the State of Washington, which granted regulators’ requests to block the merger.
Albertsons is seeking billions of dollars in damages from Kroger to make Albertsons and its shareholders whole. Albertsons’ shareholders have been denied the multi-billion-dollar premium that Kroger agreed to pay for Albertsons’ shares and have been subjected to a decrease in shareholder value on account of Albertsons’ inability to pursue other business opportunities as it sought approval for the transaction. Albertsons also seeks to recover for the time, energy, and resources it invested to try to make the merger a success, the company says.
In light of the Oregon and Washington courts’ rulings enjoining the company’s proposed merger with Kroger and Kroger’s failure to close the merger before the contractual deadline to do so, Albertsons has notified Kroger of its decision to terminate the merger agreement. This termination entitles Albertsons to an immediate $600 million termination fee and removes contractual constraints on Albertsons’ ability to pursue other strategic opportunities.
In addition to the $600 million termination fee, Albertsons is entitled to relief reflecting the multiple years and hundreds of millions of dollars it spent on obtaining approval for the merger, along with the extended period of limbo Albertsons endured as a result of Kroger’s actions, the company explains. Albertsons further seeks to recover certain expenses and costs.
Cerberus Capital Management, L.P. (“CCM”), Albertsons' largest shareholder, states, “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. 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.”
Albertsons looks forward to the remainder of fiscal 2024 and expect its financial results to be as follows:
- Annual identical sales growth in the range of 1.8% to 2.2%.
- Annual adjusted EBITDA in the range of $3.90 to $3.98 billion.
- Annual adjusted net income per Class A common share (“Adjusted EPS”) in the range of $2.20 to $2.30 per share.
- Annual income tax rate of approximately 23%.
- Annual capital expenditures in the range of $1.8 to $1.9 billion.
