Following the concurrent decisions by U.S. District Judge Adrienne Nelson in Oregon and King County Superior Court Judge Marshall Ferguson both ruling against the proposed merger of Kroger and Albertsons, the investment companies controlling Albertsons cancelled the proposed transaction and initiated legal action against the Kroger Company.  The merger, proposed nearly two years ago involving a $24.6 billion transaction, would have combined the second and fourth largest supermarket chains, limiting competition and placing consumers, especially in western states, at a disadvantage.

The Oregon ruling granted the Federal Trade Commission a temporary injunction against the merger.  The decision did not necessarily squelch the deal but informed observers suggested that continuation to completion of the transaction would be extremely difficult and expensive.  Judge Ferguson characterized the proposed merger as “unlawful,” writing, “The plan to divest 579 stores to C&S Wholesale Grocers failed to provide adequate competition not because it divests too few stores but because C&S is unlikely to be able to run them in a way that restores competition.” This is a reference to the failure of Hagen that acquired stores with the acquisition of Safeway by Albertsons, only to file for bankruptcy within a year following the transaction.

Judge Nelson noted, “The overarching goals of antitrust law are not met, however, by permitting an otherwise unlawful merger in order to permit firms to compete with an industry giant” This is a refutation of the contention by Kroger that a merger was necessary to compete with Amazon, Walmart and Costco.

There was implacable opposition to the merger by the Federal Trade Commission, the Attorneys General of nine states in addition to the two unions representing workers among both chains. The adverse rulings in Oregon and Washington state obviously convinced the owners of Albertsons that the merger would not happen and that pursuing the transaction even under the incoming Administration would be disruptive and extremely expensive.  The decision to terminate the proposed merger, or effectively an acquisition, was obviously justified if not delayed by awaiting the courts’ decisions.

Albertsons is now suing the Kroger Company, claiming the $900 million breakup fee and claiming extensive but unspecified damages for legal expenses, disruption and possibly loss of reputational image as a result of disclosures in the two trials. Albertsons is claiming that Kroger offered too little to placate opponents despite offers to workers and a statement to “invest” in store upgrades and to reducing prices over the short term. Tom Moriarty General Counsel for Albertsons stated, “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.  He characterized Kroger actions as “Self-serving conduct taken at the expense of Albertsons and the agreed transaction that has harmed Albertsons shareholders, associates and consumers.”  He concluded, “We are disappointed that the opportunity to realize the significant benefits of the merger has been lost on account of Kroger’s willful approach to securing regulatory clearance.”

The fallout between the parties will have implications beyond the immediate announcement of the termination of the agreement.  Executives at Safeway will lose their golden parachutes.  Rodney McMullen CEO of Kroger, the initiator and advocate for the merger/acquisition, will be subject to criticism by shareholders, if not his Board for overreach and expenditure on legal fees measured in the hundreds of millions.  The winners are obviously workers at both Kroger and Albertsons stores, consumers who will benefit from competition and above all, the legal fraternity. Suppliers to Kroger and Albertson’s chains, especially in western states will be an additional cohort of beneficiaries. Failure of the proposed merger will absolve them from having to submit to the massive buying power of a single large entity representing as much as 60 percent of food purchases in some states including Washington.

FTC Competition Director, Henry Liu, characterized the court verdicts and the subsequent announcement of the termination as “A victory for the American people through protecting millions of Americans across the country from higher prices for essential groceries, ultimately allowing consumers to keep more money in their pockets”.