The opinions expressed here are those of the author, a columnist for Reuters.
By Alison Frankel
Dec 17 (Reuters) - The line between love and hate is rarely thinner than in litigation over M&A deals gone bad.
The latest example: Albertsons' newly unsealed complaint in Delaware Chancery Court against its erstwhile merger partner Kroger.
The two grocery chains appeared to be working together for more than two years to complete the $25 billion merger they announced in October 2022, litigating together against state and federal regulators who sought to block the allegedly anticompetitive deal. But according to Albertsons’ lawyers in the Delaware case – Williams & Connolly, Selendy Gay, Dechert and Richards, Layton & Finger – Kroger KR.N secretly used its control over the antitrust review process to undermine a merger that was unpopular with its investors, its workers and Congress.
Albertsons ACI.N and Kroger, as you know, ended up terminating their deal on Dec. 11, after the merger was blocked by judges in state and federal court.
The Albertsons complaint lays blame entirely on Kroger. The lawsuit asserts that Kroger knew going into the deal that it would have to sell off hundreds of stores — perhaps as many as 650 properties, under the merger agreement — to appease the U.S. Federal Trade Commission. But according to Albertsons, Kroger repeatedly proposed “plainly indefensible” divestment plans to the FTC, allegedly disregarding Albertsons’ exhortations to suggest divestments that would satisfy regulators. Kroger’s refusal to propose a viable divestment package, according to Albertsons, “squandered its credibility with regulators.”
Kroger also allegedly shut Albertsons out of the “disorganized [and] protracted” process of picking a purchaser for the properties it planned to sell off. According to the complaint, Kroger turned away potential purchasers with solid track records in the retail grocery business and instead insisted on a deal to sell all of the divested properties to a grocery wholesaler. Albertsons contends that Kroger’s choice ended up creating new regulatory obstacles rather than assuaging the FTC’s concerns.
Even after the FTC and several states filed lawsuits to block the deal, Albertsons alleged, Kroger “failed to cooperate” with its merger partner. It picked a lead economics expert without listening to input from Albertsons, according to the complaint, then refused to give Albertsons a meaningful chance to review the expert’s work. Kroger’s hand-picked expert, according to Albertsons, proceeded to give testimony that did more harm than good.
Albertsons’ complaint accuses Kroger of breaching three merger provisions requiring Kroger, as the buyer, to escalate its efforts to get the deal done as regulators' concerns deepened. Under the agreement's so-called hell-or-high-water provision, Kroger was supposed to do everything possible once regulators threatened to block the merger, Albertsons said, but failed to live up to its commitment.
Albertsons said Kroger’s breaches have cost the company and its shareholders billions of dollars. It’s asking for a $600 million contractual break-up fee and additional damages.
Kroger, meanwhile, insisted in an email statement to me that it went to “extraordinary lengths” to uphold the merger agreement over the last two years – and that it is actually Albertsons that breached the deal, not Kroger.
“Kroger refutes these allegations in the strongest possible terms,” the statement said. “This is clearly an attempt to deflect responsibility following Kroger’s written notification of Albertsons’ multiple breaches of the agreement, and to seek payment of the merger’s break fee, to which they are not entitled.”
A Kroger spokesperson declined to elaborate on Albertsons’ alleged breaches and said the written notification is not publicly available. So we don’t yet know Kroger’s side of this story.
But if Delaware's busted-deal history is any guide, it would not be surprising to see Kroger respond to Albertsons' complaint with its own lawsuit alleging merger contract breaches.
That’s what happened in the last megabillion-dollar merger to be tanked by antitrust concerns. In 2017, after the U.S. Justice Department won an injunction blocking a $54 billion merger between Cigna and Anthem, both companies filed lawsuits in Delaware Chancery Court blaming the other for the merger’s failure and seeking billions in damages.
In an exhaustive 147-page decision in 2020, Vice Chancellor Travis Laster held that Cigna, the seller in the M&A deal, breached its obligation to try to close the merger, derailing the deal when its CEO realized he would not be picked to lead the post-merger company.
But Laster also found that the merger would probably have been enjoined anyway, so Anthem wasn’t entitled to recover damages.
“Each party,” he concluded, “must bear the losses it suffered as a result of their star-crossed venture.”
Albertsons declined to comment on its Kroger lawsuit, but I’m sure the company would argue that its case is distinguishable from Cigna's because the Kroger deal, in Albertsons' telling, could have been cleared by the FTC if Kroger had proposed a reasonable portfolio of stores to sell off and a more appropriate purchaser for the divested stores.
Every busted deal, after all, is unique — a truism that runs through the recent history of Delaware litigation over failed mergers. To cite just a handful of examples, there's the story of a seller that backed out of a merger, then lost its bid for a $1.8 billion breakup fee and the case of the Chinese hotel developer that sought unsuccessfully to enforce a merger, despite allegedly deceiving its acquirer during the sale process.
Then there’s the 2018 ruling that Fresenius Kabi was justified in ditching a deal to acquire a generic drugmaker with big regulatory problems – but the contrary 2021 decision forcing private equity purchasers to complete their deal to acquire a cake decorating business.
My point is just that litigation over mergers gone awry tends to turn on idiosyncratic facts that take a long time and (a lot of money in legal fees) to unravel. As the Delaware Supreme Court wrote in its 2023 decision resolving a decade of litigation over The Williams Companies failed merger with Energy Transfer, “although failed mergers are not uncommon, a failed merger without consequence is virtually unheard of.”
Albertsons and Kroger spent nearly a billion dollars on merger costs in 2024 before their deal failed. But with Albertsons’ new suit, the litigation consequences of their busted deal have only just begun.
Read more:
Albertsons demands billions from rival Kroger after terminating merger bid
Kroger's $25-billion deal for grocery rival Albertsons blocked by US courts
Kroger-Albertsons US anti-trust trial to end but other legal blocks loom
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