Albertsons cancels deal and sues Kroger

The biggest merger proposal in US grocery history has fallen through.

On Wednesday, the grocery giant Albertsons canceled its $25 billion merger with Kroger, one day after the agreement was barred by a federal court.

Announced in 2022, the merger aimed to unite the nation's fifth and tenth largest shops. The businesses are the owners of several supermarket chains, such as Fred Meyer, Vons, Harris Teeter, and Safeway.

"Given the recent federal and state court decisions to block our proposed merger with Kroger, we have made the difficult decision to terminate the merger agreement," Albertsons CEO Vivek Sankaran said in a statement. "We are deeply disappointed in the courts' decisions."

Albertsons accused Kroger of causing the merger to be halted and filed a lawsuit against Kroger for breach of contract. Kroger did not use its "best efforts" or take "any and all actions" to get regulatory clearance of the transaction, according to Albertsons.

“Kroger’s self-serving conduct, taken at the expense of Albertsons and the agreed transaction, has harmed Albertsons’ shareholders, associates and consumers,” Albertsons’ General Counsel and Chief Policy Officer Tom Moriarty said in a statement. “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.”

"Baseless and without merit," according to Kroger, Albertsons' accusations were a diversion of Albertson's own "multiple breaches" and an attempt to get a break-up fee "to which they are not entitled." "Extraordinary lengths" were taken to further the merger, Kroger noted.

Kroger and Albertsons planned to combine in order to better compete with Walmart and Amazon, since supermarkets have been losing ground to competition in recent decades. In addition to having largely unionized workforces, Kroger and Albertsons stated that they wished to combine in order to become more competitive with non-union behemoths.

But in her ruling, federal judge Adrienne Nelson in Oregon said that supermarkets are “distinct from other grocery retailers” and are not direct competitors to Walmart, Amazon and other companies that sell a wider range of goods. In the order, she stated that the combination will remove direct competition between Albertsons and Kroger, which might result in higher pricing for customers.

Despite claiming that their combined size would enable them to reduce prices for customers, Kroger and Albertsons' opponents contended that the merger would result in higher pricing.

It seems like investors thought the deal would fail: The stocks of Albertsons and Kroger both increased on Wednesday.  Early Wednesday trade saw a 0.5% increase in Albertsons' shares and a 1% increase in Kroger's.