CINCINNATI — The Kroger Co. has terminated its $24.6 billion agreement to acquire Albertsons Cos., announcing the move hours after its merger partner said it exited the deal.

Cincinnati-based Kroger said it reviewed its options after the US District Court for Oregon on Dec. 10 granted the Federal Trade Commission’s request for a preliminary injunction to block the transaction, leading the company to conclude it was “no longer in its best interests to pursue the merger.”

Kroger reported its termination of the deal later in the day on Dec. 11. That morning, Boise, Idaho-based Albertsons had announced it was exercising its right to end the transaction and filing a breach-of-contract lawsuit against Kroger regarding the merger agreement. Also, on Dec. 10, Washington’s King County Superior Court had granted a permanent injunction against the proposed merger in the state.

The court rulings brought a swift end to what would have been the nation’s largest-ever merger of traditional supermarket retailers. The federal and state regulatory reviews lasted more than two years.

“I appreciate our associates who remained focused on taking care of our customers, communities and each other throughout the merger process,” said Rodney McMullen, chairman and chief executive officer of Kroger.

With the merger pursuit now over, Kroger said the company is “ready to deploy its capacity” with a “strengthened balance sheet” that will it to resume share repurchases after a more than two-year pause.

To that end, Kroger’s board of directors authorized a new share buyback program of up to $7.5 billion of common stock, which replaces the previous $1 billion repurchasing plan approved in September 2022. The company said it plans to enter into an accelerated agreement for the repurchase of about $5 billion in common shares.

“Our strong balance sheet and free cash flows position us to deliver on our commitment to grow the business and return capital to shareholders, maintaining capacity to invest in lower prices and higher associate wages,” McMullen said.

Case for merger falls short 

Ultimately, Kroger and Albertsons weren’t able to make the case that their merger would enable them to bring more benefits to consumers, employees and communities through greater economies of scale. Likewise, the judges weren’t swayed by the argument that the merger would help the two grocers better compete against intensifying competition from mass chains like Walmart, Costco, Target and Dollar General and discount grocers and online retailers like Aldi and Amazon, which have seized significant grocery retail market share from conventional supermarkets over the past few decades.

Instead, the FTC and Washington state convinced the judges that the merger would increase market concentration and lead to higher grocery prices and fewer grocery store choices for consumers and less bargaining power for unionized workers.

“This is a significant win for the FTC and the state co-plaintiffs,” said David Schwartz, an antitrust partner in Washington with law firm BCLP and a former lead investigative attorney for the FTC. “At the end of the day, the number of highly overlapping markets was just too high for the judge to let the deal go through, even with the proposed divestiture plan.”

When the merger was announced on Oct. 14, 2022, Kroger and Albertsons said the deal — joining the first- and second-largest traditional supermarket operators — would create a company with revenue of $210 billion and 4,996 stores, 66 distribution centers, 52 manufacturing plants, 3,972 pharmacies, 2,015 fuel centers and 710,000 employees in 48 states and the District of Columbia. To address regulators’ antitrust concerns, a September 2023 divestiture deal with distributor C&S Wholesale Grocers was expanded this past April to a $2.9 billion package, including 579 stores in 18 states and DC; eight distribution centers and additional warehouse space; and five private labels, plus access to two other brands.

However, the judges decided that Kroger and Albertsons’ divestiture pact with C&S wouldn’t yield a supermarket operator strong enough to remedy the competitive imbalance created in geographic markets impacted by the merger.

“The decision shows the import of engaging with the other side’s evidence,” Schwartz said. “Kroger and Albertsons refused to do so, solely considering a world in which their divestiture of certain stores was a fait accompli, whereas the FTC first considered the merger and then later considered the divestiture. The defendants’ strategy prevented the judge from comparing apples to apples, and in the end the judge simply threw up her hands and found the defendants’ expert highly unpersuasive.”

Keene, NH-based C&S, the nation’s largest privately held grocery distributor, said it aims to continue efforts to expand its retail business as part of its growth strategy.

“Following the termination of the merger agreement between Kroger and Albertsons, Kroger has terminated the divestiture agreement between Kroger, Albertsons and C&S,” C&S Wholesale Grocers said. “This does not change C&S’ position as a market leader or our plans for future growth. We remain committed to our transformation strategy, which includes expansion into retail as well as evolving our capabilities and reach to better serve our wholesale customers.

 “C&S will continue to pursue our strategic set of growth initiatives, including increasing our customer base, expanding our retail footprint and, of course, building on our legacy of braggingly happy customers.”

Kroger sticks to pre-merger strategy

Kroger, meanwhile, will be “moving forward from a position of strength,” said McMullen. The biggest US traditional supermarket retailer, Kroger generated fiscal 2023 sales of $150 billion and now operates 2,728 stores, 2,271 pharmacies and 1,691 fuel centers in 35 states and DC under banners including Kroger, Ralphs, Fred Meyer, Dillons, Smith’s, King Soopers, Fry’s, QFC, Harris Teeter, City Market, Owen’s, Jay C, Pay Less, Baker’s, Gerbes, Pick ‘n Save, Metro Market, Mariano’s, Food 4 Less and Foods Co.

“Our go-to-market strategy provides exceptional value and unique omnichannel experiences to our customers, which powers our value creation model,” McMullen said. “We look forward to accelerating our flywheel to grow our alternative profit businesses and generate increased cash flows. The strength of our balance sheet and sustainability of our model allows us to pursue a variety of growth opportunities, including further investment in our store network through new stores and remodels, which will be an important part of our 8% to 11% TSR (total shareholder return) model over time.”

Kroger’s “Leading with Fresh and Accelerating with Digital” strategy focuses on the “competitive moats” of “Fresh, Our Brands (private label), Personalization and Seamless (omnichannel),” with the latter driven by automated customer fulfillment centers developed with UK online grocer Ocado Group. Kroger also has been cultivating alternative revenue streams such as retail media and data and analytics to help support investments in e-commerce, technology and the core food retail business.

In announcing the merger’s termination, Kroger noted that its ongoing “investments in America” include $5 billion in lower prices since 2003, $2.4 billion in incremental wage increases on top of “industry-leading” benefits since 2018, and a 38% raise in the average hourly wage, while broadening opportunities for a “largely unionized” grocery workforce. The company also cited annual capital investments of $3.6 billion to $3.8 billion to build and remodel stores, food processing plants and other facilities as well as to improve the customer experience and create more job opportunities, along with charitable giving since 2017 of $2.3 billion to support local communities, including $1.5 billion to feed hungry families.