Albertsons Companies (NYSE:ACI) is set to begin presenting its case against Kroger (NYSE:KR) in a Delaware court on Monday, seeking more than $8 billion in damages related to the collapse of their proposed $24.6 billion merger.
The US grocery retailer alleges that Kroger breached its contractual obligations by failing to take the steps necessary to secure regulatory approval for the transaction, which was blocked by courts in December 2024.
Kroger disputes the allegations, maintaining that it complied with the merger agreement and that the transaction failed because of regulatory opposition.
The trial is scheduled to last two weeks in Delaware’s Court of Chancery, with Vice Chancellor Lori Will presiding.
Albertsons argues that Kroger did not fulfil its commitment to pursue antitrust approval for the proposed combination, particularly in relation to the sale of stores required to address competition concerns.
According to Albertsons, the merger agreement required Kroger to take “any and all actions” necessary to obtain regulatory clearance, including divesting up to 650 stores.
The company alleges that Kroger instead sought to limit the number of stores it would sell in order to preserve the profitability of the combined business.
In court filings, Albertsons characterised the divestiture proposals submitted to regulators as insufficient to address the competition issues identified during the approval process.
Albertsons also alleged that Kroger established a $400 million executive bonus pool intended to encourage senior management to adopt an aggressive negotiating position towards regulatory demands.
These claims form part of Albertsons’ case and have not been established by the court.
Albertsons is seeking more than $8 billion in compensation, comprising several elements associated with the proposed transaction.
The company claims that its shareholders lost a potential merger premium of up to $6.88 billion when the deal was abandoned.
It is also seeking a $600 million termination fee and more than $1 billion in tax-related adjustments.
Albertsons argues that these amounts reflect financial benefits it would have received, or losses it attributes to the failure of the transaction.
Kroger contests the company’s entitlement to the claimed compensation, including the termination fee.
The court will need to determine whether either party breached the merger agreement and, if so, what financial remedies may be appropriate.
The amounts requested by Albertsons represent its legal claims rather than damages that have been awarded.
Kroger rejects Albertsons’ interpretation of the merger agreement and maintains that it fulfilled its contractual obligations.
In its court filings, the company argues that the transaction failed because federal and state regulators opposed the combination and courts ultimately blocked it.
Kroger said the administration of former US President Joe Biden sought divestitures exceeding the 650-store threshold referenced in the agreement.
The company also disputes the approach taken by courts when assessing competition in the grocery sector.
According to Kroger, the courts adopted an overly narrow definition of the relevant market by excluding competitors such as Amazon and Costco from parts of their analysis.
Kroger maintains that these factors, rather than any failure to pursue regulatory approval, prevented the merger from proceeding.
The company also said it spent more than $1 billion and devoted tens of thousands of hours of employee and adviser time to efforts to complete the transaction.
Kroger cited those expenditures as evidence of its commitment to securing approval.
Kroger and Albertsons announced their proposed merger in 2022, seeking to combine businesses operating approximately 5,000 grocery stores.
The companies argued that the transaction would improve their ability to compete with retailers including Walmart, Costco, Amazon and Aldi.
Albertsons operates grocery chains including Safeway, Acme and Kings Food Markets, while Kroger owns brands including Dillons, Ralphs and Fred Meyer.
The proposed combination faced opposition from federal and state authorities, which argued that reducing competition between the two grocery companies could result in higher prices for consumers.
In December 2024, federal and state courts blocked the merger.
Albertsons subsequently terminated the agreement, a decision Kroger said prevented it from pursuing an appeal against the regulatory rulings.
The disagreement over the parties’ respective responsibilities for the transaction’s failure is now central to the Delaware proceedings.
The trial could include testimony from current and former senior executives of both grocery companies.
According to court documents, potential witnesses include Albertsons Chief Executive Susan Morris, former Kroger Chief Executive Rodney McMullen and former Albertsons Chief Executive Vivek Sankaran.
McMullen and Sankaran led their respective companies when the merger agreement was announced.
Kroger has alleged that Albertsons interfered with its ability to negotiate regulatory remedies, including through communications concerning the proposed store divestitures.
The company has specifically questioned communications attributed to Morris, alleging that they were not authorised.
Albertsons rejects the allegation and maintains that there is no evidence Morris disclosed sensitive information.
Kroger intends to argue that Albertsons’ conduct affects its entitlement to the $600 million termination fee.
Other potential witnesses include financial and legal advisers, expert witnesses, and current and former executives and directors involved in the transaction.
The legal proceedings begin as both companies pursue separate operational initiatives following the collapse of their proposed merger.
Albertsons recently announced a review of its business aimed at identifying cost reductions.
Kroger has outlined plans to eliminate approximately 3,000 positions while investing in technology intended to support lower retail prices.
The companies’ share prices have also followed different paths since the merger agreement was terminated.
Kroger shares have gained approximately 4%, while Albertsons shares have declined nearly 30%.
Over the same period, the S&P 500 has advanced by more than 25%, meaning both retailers have underperformed the broader US equity benchmark.
These market movements provide context for the companies’ performance following the abandoned transaction but do not determine the merits of the legal claims.
The bench trial is expected to run for approximately two weeks, although a final ruling may not be issued immediately after proceedings conclude.
Decisions in Delaware’s Court of Chancery can take several months following the completion of a trial.
Any ruling may also be appealed to the Delaware Supreme Court.
The proceedings will focus on the interpretation of the merger agreement, the parties’ obligations during the regulatory approval process and whether the circumstances surrounding the transaction’s termination give rise to financial liability.
Albertsons is seeking compensation exceeding $8 billion, while Kroger maintains that it complied with the agreement and is not responsible for the transaction’s failure.
The court has not yet determined whether either company breached its contractual obligations or whether any damages are payable.
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