Kroger’s reluctance to sell enough supermarkets to satisfy antitrust regulators undermined its proposed $24.6 billion acquisition of Albertsons, the former chief executive of Albertsons testified Monday, as the two grocery chains began a legal battle over responsibility for the failed transaction.
Vivek Sankaran, who led Albertsons during the merger negotiations and regulatory review, told the Delaware Court of Chancery that disagreements over store sales weakened the companies’ position with federal regulators and contributed to the eventual collapse of the deal, according to a Grocery Dive report published Tuesday.
The testimony comes as Albertsons pursues approximately $8 billion in damages from Kroger, alleging that its former merger partner failed to fulfill obligations under their agreement. The claim includes a $600 million termination fee and compensation for losses Albertsons attributes to the abandoned transaction.
Kroger disputes the claims and maintains that Albertsons is not entitled to the requested payments, Grocery Dive reported.
Store Sales Emerge as Central Dispute
The companies announced their merger in October 2022, proposing a combination that would have significantly reshaped the U.S. supermarket industry.
Regulatory approval depended in part on their willingness to sell stores in markets where the proposed combination raised competition concerns.
According to Grocery Dive’s account of Sankaran’s testimony, Kroger initially sought to limit its required divestitures to roughly 400 to 450 supermarkets. Albertsons pushed for a substantially higher threshold, and the companies eventually settled on a maximum of 650 locations.
Despite that agreement, Kroger’s initial proposal to the Federal Trade Commission involved selling only 238 stores, Sankaran testified.
Related: Albertsons Seeks $8 Billion From Kroger as Failed Merger Trial Begins
He argued that the limited proposal damaged the companies’ standing with regulators because it fell well short of what authorities were likely to consider sufficient to address competition concerns.
The companies subsequently expanded their proposed divestiture package to 413 stores, but Sankaran said the increase came after their credibility had already deteriorated.
The proposed store sales ultimately rose to 579 locations. By then, the FTC and attorneys general from nine states had already moved to block the merger in federal court, according to Grocery Dive.
Albertsons Says Regulatory Concerns Went Unaddressed
Sankaran also described growing frustration with Kroger’s management of the approval process.
Under the merger arrangement, Kroger directed the regulatory strategy, while Albertsons sought to minimize its exposure to the risks associated with a prolonged review.
According to Grocery Dive, Sankaran testified that Kroger did not respond adequately to Albertsons’ concerns about delays or to potential remedies raised by the FTC.
He also questioned whether Kroger was placing too much emphasis on the financial performance of stores selected for sale rather than choosing locations that would address regulators’ concerns about market competition.
The former Albertsons chief executive said he attempted to resolve the disagreement by offering a reduction of $800 million in the agreed acquisition price in late 2023. The concession was intended to make a larger store-sale package financially feasible, but the proposal did not lead to an agreement.
The testimony also highlighted strains in the relationship between the companies’ senior executives.
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Sankaran said communication with Rodney McMullen, Kroger’s chairman and chief executive at the time, became increasingly difficult as the regulatory process continued.
He eventually contacted Yael Cosset, then Kroger’s chief information officer, to communicate concerns about the company’s approach to securing approval, according to Grocery Dive.
During cross-examination, Kroger’s legal counsel questioned why Sankaran had not raised those concerns with Ronald Sargent, who was then Kroger’s lead independent director.
Sankaran responded that he had been dealing directly with Kroger’s top executive and expected communication through that relationship.
Failed Transaction Leads to Multibillion-Dollar Legal Fight
The proposed combination collapsed in December 2024 after encountering opposition from federal and state antitrust authorities.
The companies subsequently became adversaries in a dispute over whether Kroger had taken sufficient steps to obtain regulatory clearance and whether Albertsons is entitled to financial compensation.
Albertsons’ lawsuit places particular emphasis on the responsibilities Kroger accepted when the merger agreement was signed.
The company’s position, as described in Grocery Dive’s coverage, is that Kroger’s decisions during the approval process contributed directly to the transaction’s failure and caused financial harm to Albertsons and its shareholders.
Kroger rejects that position, leaving the court to evaluate the competing interpretations of the agreement and the conduct of both companies.
The dispute underscores the importance of regulatory commitments in large corporate acquisitions, particularly transactions involving businesses with substantial geographic overlap.
For supermarket operators, divestitures can be a central part of obtaining antitrust clearance. Selling too few stores may fail to address competition concerns, while larger divestiture packages can reduce the financial benefits of a transaction.
The Delaware proceedings will determine whether Kroger’s handling of those trade-offs constituted a breach of its contractual obligations to Albertsons.
Source: Grocery Dive
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