Dive Brief:
- Kroger has accused Albertsons of secretly working to undermine Kroger’s strategy to secure regulatory clearance for their proposed merger.
- Albertsons officials, including CEO-designate Susan Morris, engaged surreptitiously in a “misguided campaign” with C&S Wholesale Grocers that ultimately led a Washington state judge to block the deal, Kroger said in papers it filed in response to a lawsuit filed by Albertsons in December.
- As a result of its actions, Albertsons is not entitled to the $600 million termination fee it is seeking to collect, Kroger claims.
Dive Insight:
Kroger’s response comes in the wake of Albertsons and C&S each making allegations that Kroger’s actions jeopardized the $24.6 billion merger’s chances of gaining regulatory approval.
Kroger alleges Albertsons and C&S secretly worked together to increase the size of the store divestment package to C&S and that Albertsons planted a paper trail of “unfounded” claims for a planned lawsuit against Kroger if the merger was blocked in court. Kroger claims that Albertsons’ allegations go against what Albertsons executives said under oath during the antitrust trials.
Kroger also claims that Albertsons “began a surreptitious process of working to implement its preferred regulatory strategy behind Kroger’s back” that included persuading C&S to tell regulators it needed more stores and assets in order to be able to effectively compete.
“Albertsons believed that, if C&S told regulators it needed more stores and assets from Kroger to compete effectively, then Kroger could be pressured to provide them to C&S,” Kroger claims.
But this plan, which Kroger alleges was spearheaded by Morris, ultimately backfired because it painted C&S as a company that needed significant support in order to compete effectively as a national retailer, Kroger noted.
After its strategy involving C&S didn’t pan out, Kroger alleges that Albertsons implemented a “Plan B” of collecting documentation with the goal of suing Kroger if the merger wasn’t allowed to proceed. Kroger’s filing notes Albertsons’ struggles to compete on a national scale, which Albertsons’ lawyers outlined during the trials, fueled this decision.
“This litigation strategy was, at its core, a business strategy,” Kroger noted in its filing.
Kroger also claims in the legal filing that it was ready to “pursue all remaining options to close the merger” in the event of adverse court decisions, but that Albertsons terminated the deal within hours of two judges issuing rulings to block the transaction.
“These actions ensured that the merger would never close, and further demonstrated that Albertsons had long before shifted its focus towards the litigation that is now pending between the parties, abandoning its contractual obligation to use best efforts to close the transaction,” Kroger said in a statement.
Kroger is seeking damages from Albertsons.
In response to Kroger’s counterclaims, Albertsons said it was “steadfastly committed” to the merger and that “Kroger did not hold up its end of the bargain,” a spokesperson for the grocer said in an emailed statement.
“Kroger’s weak claims are a deliberate tactic to distract from its own ongoing executive leadership issues; blatant and recurring failures to carry out its contractual obligations under the Merger Agreement; and avoid paying the damages it owes to Albertsons,” the spokesperson said.
Albertsons repeated its claims that Kroger acted in its own financial interest and “doomed the merger” by ignoring regulators’ concerns, mismanaging the divestiture planning process and not cooperating with Albertsons.
Jeff Wells contributed reporting
