Kroger and Albertsons: the food fight every dealmaker should be watching

But when supermarket giant Kroger agreed to acquire Albertsons for $24.6 billion in 2022, a pledge to try was not enough. In a form of commitment that amounts to what the lawyers call “hell or high water,” Kroger agreed to take “any and all actions” necessary to win approval. That is a big burden, which was understandably interpreted by Albertsons as a clear signal that Kroger was committed to honoring its contract and was all in on the deal.

Then the high water arrived. In December 2024, on the same day, a federal judge in Oregon granted the Federal Trade Commission’s request to block the merger and a state judge in Seattle did the same in a suit brought by Washington’s Attorney General. Albertsons terminated the deal and sued Kroger the next day.

I can only assume the Albertsons team was dumbstruck to discover that, when the water rose, Kroger bailed.

This week, the Delaware Court of Chancery began hearing from the formidable legal teams both grocery giants have fielded, and will ultimately have to decide whether Kroger did indeed do everything it could to honor its contract. Both sides’ pre-trial briefings show the roadmaps they will each follow over the course of the two-week trial to make their respective cases. Quite frankly, based on those detailed documents, it does not look good for team Kroger.

If Albertsons succeeds, the resulting damage award Kroger must pay could prove to be significant. According to the plaintiff’s calculations, an award could be more than $8 billion – which is ironic considering Albertsons will argue that Kroger prioritized its financial return over its obligations. This is a case every dealmaker in America will be watching closely, both because of the money involved but also because the court might better define what the words “any and all actions” really mean.

A review of what has been filed suggests that Kroger’s argument will be that it really, really, really tried. The company spent heavily pursuing approval and had every economic incentive to close, but the Biden administration’s skeptical regulators were just never satisfied that the company’s proposed plans would protect competition and consumers. You cannot bill us for the politically motivated actions of others, Kroger will say.

The problem, says Albertsons, is that the contract is clear. Trying hard is not enough to fulfill what the contract requires. Even former Kroger CEO Rodney McMullen has conceded under oath that Kroger had agreed to do whatever the contract required.

When attorneys transact a merger between two retail giants like Albertsons and Kroger, a standard strategy to address anticompetitive concerns is to spin off a new competitor. But the spin off must be truly able to compete. It is not just a matter of selling off a certain number of stores, a selection of private label products, manufacturing sites, and other assets. You must offload the right stores and the right assets to build a viable business that shoppers will consider.

Albertsons will argue that Kroger did not even try. Instead of deciding what to sell off to create a new competitor, Kroger focused on what stores and assets it would never sell. In other words, the merged company would hold on to Kroger’s crown jewels, and any new firm would get the leftovers. As a result, the courts and the FTC both decided that the new competition would be inadequate. 

Indeed, Kroger allegedly baked the resistance into the pay packages granted to its top leaders. Senior executives stood to collect bonuses worth as much as six times their base salaries if the merger closed while delivering Kroger’s targeted financial returns. That incentivized those bosses to resist selling more valuable stores or other assets, even if it cost them the deal.

Then there are the departures the lawyers on both sides seem eager to avoid explaining. McMullen, who was Kroger’s Chairman and CEO through most of the approval fight, and his CFO Gary Millerchip left the company at crucial moments in the process. McMullen’s departure was blamed on unspecified personal behavior issues. Millerchip’s was tied to a lucrative new job at Costco.

To this day, the actual reason for McMullen’s departure remains shrouded in secrecy.

But all of this should not obscure what the Delaware court is being asked to decide.

This is not, at its core, a referendum on McMullen’s character, Kroger’s corporate culture, the alleged avarice of its senior leaders, or even the company’s allegedly poor divestiture process. It is a contract case.

Kroger made a specific, unusually demanding promise that it would take “any and all actions” necessary to get the merger approved. Albertsons says when the necessary actions became too expensive – when Kroger figured out it would have to sell stores and assets it wanted to keep – Kroger called it quits.

That is the whole dispute. Kroger will say it spent a ton, had the smartest advisors, and did everything reasonable. In short, Kroger tried hard and was thwarted by the regulators. Albertsons’ reply will clearly be that trying hard was not what Kroger promised. The contract the company signed was to get the deal done, come hell or high water, and because of its failure, Kroger should be forced to pay for its weak efforts and a failed merger.  

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