The widely contested Kroger-Albertsons merger was officially terminated last week, two years after it was first announced. Now, Albertsons Companies has filed an official lawsuit against Kroger, accusing the grocer of sabotaging the sale after experiencing “buyer’s remorse,” Supermarket News reported.

On December 10, judges in Oregon and Washington halted the merger, siding with the Federal Trade Commission (FTC) over concerns that the deal would limit grocery competition. A decision regarding a third antitrust case in Colorado is still pending.

In the lawsuit, initially filed last week, Albertsons accused Kroger of failing to meet its commitment to use "best efforts" to secure approval for the merger. The agreement stipulated that both companies would take necessary actions to eliminate any regulatory barriers to closing the deal. 

Albertsons claimed that Kroger fell short in this regard, particularly when it came to formulating a divestiture plan. The company alleged that Kroger neglected to consider potential buyers with proven experience in managing large grocery operations, instead opting for C&S Wholesale Grocers, which is primarily a wholesaler. 

About 60 potential bidders signed non-disclosure agreements to explore buying stores in early 2023, but the name of one major grocery competitor interested in the deal was redacted from the lawsuit.

The lawsuit asserts that presenting a robust divestiture offer from the outset could have influenced FTC staff to be less likely to recommend blocking the merger and would have facilitated negotiations for a viable solution. However, Albertsons claimed that Kroger chose not to pursue this approach.

In response, Kroger dismissed Albertsons' allegations as unfounded. In a statement to Supermarket News, Kroger emphasized that the lawsuit was an attempt by Albertsons to shift blame after Kroger had pointed out its numerous breaches of the merger agreement. Kroger insisted that it made extensive efforts to uphold the agreement throughout the regulatory review process, and stated that the facts would support its position in court.

Related articles: Kroger-Albertsons merger terminated

Initially, Kroger proposed to divest only 238 stores, significantly fewer than the 650 recommended in the merger agreement. The lawsuit claimed that during initial meetings with the FTC, Kroger struggled to answer fundamental questions regarding the economic rationale behind its divestiture proposal and the criteria used to select which stores to divest.

The lawsuit further asserted that Kroger selected underperforming stores for divestiture instead of addressing the FTC’s concerns about concentrated market power. The chosen partner, C&S, has come under scrutiny due to its history of selling retail locations shortly after the acquisition, raising doubts about its credibility in the eyes of the FTC.

Kroger's initial Asset Purchase Agreement (APA) included 413 C&S stores, many of which were selected based on Kroger's interests rather than a neutral economic analysis required by the merger agreement. Additionally, the APA did not incorporate non-store assets that would be critical for making the divested stores competitive.

Following the FTC's characterization of Kroger's initial 413-store offer as “woefully inadequate,” Kroger increased its proposal to include 579 stores, still falling short of the agreement's recommendation. 

The lawsuit pointed out that this 579-store package remained susceptible to antitrust challenges, and even Kroger's own economic expert struggled to justify it, conceding at trial that the merger was presumptively anticompetitive in numerous markets.

Other claims include instances where Kroger failed to communicate effectively with Albertsons and disregarded their advice. Ultimately, the lawsuit alleged that Kroger undermined the merger after experiencing "buyer's remorse," influenced by a downturn in market reaction and declining profits post-pandemic. 

Albertsons is seeking a ruling that Kroger willfully breached the merger agreement, along with unspecified damages for the company and its shareholders. These are calculated to be in the billions. 

Additionally, Albertsons seeks a $600 million break fee outlined in the merger agreement. The lawsuit contends that these breaches not only harmed Albertsons' shareholders but also deprived consumers of a supermarket option that could have offered lower prices and greater choice.