"Willful breach": Albertsons hits Kroger with massive lawsuit as merger sours

The largest proposed merger in the history of American supermarkets came to an abrupt end this week after Albertsons terminated its $25 billion merger agreement with Kroger one day after a federal judge’s ruling blocked the deal. Now, in a dramatic twist, Albertsons has announced it is suing Kroger for breaching the terms of their contract, marking a contentious conclusion to an already controversial proposal. 

The merger, which was first publicly announced in 2022, sought to bring together two of the nation’s largest grocery chains: Kroger, the largest, and Albertsons, the fifth-largest supermarket chain. Together, they own a portfolio of brands including Safeway, Mariano’s, Fred Meyer, Harris Teeter and Vons. The companies argued the merger was necessary to allow them to compete against retail giants like Walmart, Amazon and Costco, whose dominance has already reshaped the grocery landscape. 

However, the merger immediately faced strong opposition, initially from unionized grocery employees who expressed concern that the deal would ultimately decrease competition, which could result in lower wages and less bargaining power. Small grocery competitors and bipartisan political leaders also expressed concern about corporate consolidation driving up costs for wholesalers and prices for customers. 

In her ruling on Tuesday, U.S. District Judge Adrienne Nelson of Oregon sided with those opponents, saying that Kroger and Albertsons are “distinct from other grocery retailers” and are not direct competitors with Walmart, Amazon and other companies that sell a wider range of goods, according to CNN. In her ruling, she determined the merger would eliminate key competition. 

Albertsons responded to the ruling by immediately ending the merger agreement and filing a lawsuit against Kroger in the Delaware Court of Chancery for “willful breach of contract and breach of the covenant of good faith and fair dealing arising from Kroger’s failure to exercise ‘best efforts’ and to take ‘any and all actions’ to secure regulatory approval of the companies’ agreed merger transaction.” The company further alleges Kroger leadership ignored regulators’ concerns, rejected divestiture opportunities and prioritized their own financial interests over its contractual obligations. 

“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,”  said Tom Moriarty, Albertsons’ General Counsel, in a written statement. “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 continued: “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.”

Kroger, meanwhile, dismissed the claims as “baseless and without merit,” saying the company went to “extraordinary lengths” to advance the merger and characterizing the lawsuit as a deflection of Albertson’s own “multiple breaches,” according to CNN. 

While this isn’t the end leaders at Kroger or Albertsons likely envisioned for the merger, the collapse of the deal marks a significant victory for consumer advocates and union coalitions, many of whom had mobilized to oppose it.

A coalition of UFCW unions, representing over 100,000 grocery store employees, praised the ruling and Albertsons’ decision to terminate the merger. 

 “Following [Tuesday’s] court rulings blocking the proposed Kroger and Albertsons mega-merger, we welcome Albertsons’ decision to terminate the merger transaction, meaning there will be no further court appeals seeking to complete the merger,” the coalition’s leadership said in a statement. “We encourage the leaders of both Kroger and Albertsons to invest resources in their stores by investing in adequate staffing so customers are better served and workers can safely and effectively operate the stores and stock the shelves. These investments will result in higher sales and improved satisfaction by shoppers and employees alike.” 

The statement continued: “Now is not the time to waste billions on share buybacks or expanded dividends to Wall Street investors. Albertsons already wasted $4 billion in their premature, massive payout to wealthy shareholders back in January of 2023 when the merger transaction began. Meanwhile, Kroger appears to have wasted more than $1 billion on costs associated with the failed merger transaction itself. 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.” 

In the wake of the merger’s collapse, Kroger, which entered the merger the stronger of the two companies, appears to be better positioned to weather the potential fallout. As CNN reported, CEO Rodney McMullen said just last week, “We’ve always made sure that we don’t need to do mergers to make our business successful.” 

Albertsons, meanwhile, face an uphill battle to financial recovery. Its lawsuit against Kroger seeks to recoup costs associated with the failed merger and offset the financial losses incurred during the regulatory limbo. 

“Albertsons is seeking billions of dollars in damages from Kroger to make Albertsons and its shareholders whole,” the company’s statement regarding the lawsuit read. “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 in good faith to try to make the merger a success.” 

Union representatives, however, remain focused on securing better conditions for workers at both chains. 

In Colorado, for example, UFCW Local 7 is preparing for contract negotiations with Kroger and Albertsons ahead of the 2025 expiration of a prior agreement. “Understaffing within the stores is rampant,” said UFCW Local 7 President Kim Cordova. “Now that the proposed anti-competitive merger is behind us, it’s time for the companies to get serious about fixing these problems.”