A week ago, when CEO Rodney McMullen basically said Kroger BB #:100073 would be fine without approval of its merger with Albertsons, I asked “But how does Albertsons feel about that?”
We have an answer.
Boise-based Albertsons BB #:193326 sent out two news releases the morning after U.S. District Judge Adrienne Nelson granted the Federal Trade Commission’s request for a preliminary injunction to prevent Kroger from acquiring the company in Portland, OR, and King County, WA, Superior Court Judge Marshall Ferguson issued a permanent injunction barring the merger.
The first news release announced the termination of the merger agreement, and the second announced Albertsons has filed a lawsuit for breach of merger agreement.
Albertsons says, “Kroger willfully breached the merger agreement in several key ways, including repeatedly refusing to divest assets necessary for antitrust approval, ignoring regulators’ feedback, rejecting stronger divestiture buyers, and failing to cooperate with Albertsons.”
The original agreement entitles Albertsons to a $600 million termination fee, but Albertsons is seeking additional relief “reflecting the multiple years and hundreds of millions of dollars it devoted to obtaining approval for the merger, along with extended period of unnecessary limbo Albertsons endured as a result of Kroger’s actions.”
The challenges to the merger in the Pacific Northwest were strategic. While Greg Johnson, Blue Book’s vice president of media, and I have said that Walmart is the foil to the argument that Kroger and Albertsons merging would create a massive monopoly on supermarket grocery, the PNW market is dominated by Kroger and Albertsons.
According to the challenge in Washington state, “Kroger and Albertsons are the two largest supermarket chains in Washington and the second and fourth largest supermarket operators in the country. More than half of all supermarkets in Washington state are currently owned by either Kroger or Albertsons, and they account for more than 50% of all supermarket sales in the state.”
The two operate more than 300 stores in Washington compared Walmart’s 66.
The Washington investigation also uncovered comments by Albertsons executives quoting one saying “you are basically creating a monopoly in grocery with the merger…[it] makes no sense,” and “it’s all about the pricing and competition and we all know prices will not go down.”
What’s next? With the merger effectively over, Albertsons has said in the past that market exits, layoffs, and store closures are likely. Another buyer also could emerge.
Kroger says it is “poised for long-term sustainable growth,” as McMullen told investors last Thursday during the company’s third quarter earnings call:
“We’ve always made sure that we don’t need to do mergers to make our business successful.”
