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The proposed merger between the supermarket giants Albertsons Companies Inc. (NYSE: ACI) and The Kroger Co. (NYSE: KR) collapsed this morning as Albertsons terminated the merger agreement and filed a lawsuit against Kroger claiming a willful breach of contract and breach of the covenant of good faith and fair dealing from what the company called Kroger’s failure to exercise “best efforts” and take “any and all actions” to secure regulatory approval.

The Kroger-Albertsons transaction was announced in October 2023, but in February a lawsuit was filed by the Federal Trade Commission (FTC), eight states and the District of Columbia to stop the deal that would create a combined company with more than 4,000 stores. Yesterday, a federal judge blocked the $20 billion transaction, agreeing with the FTC that the merger would drive up grocery prices and overpower competition.

The initial agreement included the offloading of 413 locations to C&S Wholesale Grocers LLC, which operates the supermarket chains Piggly Wiggly and Grand Union; the total number of stores was later raised to 579 outlets.

Albertsons’ lawsuit, which was filed in the Delaware Court of Chancery, asserted that Kroger willfully breached the merger agreement by refusing to divest assets necessary for antitrust approval, ignoring regulators’ feedback, rejecting stronger divestiture buyers and failing to cooperate with Albertsons.

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“A successful merger between Albertsons and Kroger would have delivered meaningful benefits for America’s consumers, Kroger’s and Albertsons’ associates, and communities across the country,” said Tom Moriarty, Albertsons’ general counsel and chief policy officer. “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. Kroger’s self-serving conduct, taken at the expense of Albertsons and the agreed transaction, has harmed Albertsons’ shareholders, associates and consumers. 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.”

Albertsons added that it is entitled to an immediate $600 million termination fee for the cancellation of the merger while removing contractual constraints on Albertsons’ ability to pursue other strategic opportunities. Kroger did not immediately comment on the lawsuit.

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