• by Sarah Mahoney  @mahoney_sarah, December 12, 2024

While the Kroger and Albertsons $25 billion megamerger never quite made it to the altar, the breakup story has already turned nasty.

Kroger terminated the merger agreement, citing the recent U.S. District Court decision that the combined company would reduce choices and raise prices for consumers. Albertsons then filed a lawsuit against Kroger, alleging that Kroger had not been fierce enough in its defense of the deal. That suit seeks a $600 million termination fee and “relief reflecting the multiple years and hundreds of millions of dollars it devoted to obtaining approval for the merger, along with the extended period of unnecessary limbo Albertsons endured as a result of Kroger’s actions.”

Albertsons, based in Boise, Idaho, says that Kroger “willfully breached the merger agreement in several key ways, including by repeatedly refusing to divest assets necessary for antitrust approval, ignoring regulators’ feedback, rejecting stronger divestiture buyers and failing to cooperate with Albertsons.”

Kroger responded with a statement that the Albertsons suit is “baseless and without merit,” adding that Albertsons committed “repeated intentional material breaches and interference throughout the merger process, which we will prove in court.”

Mainly, Kroger is focused on moving on, with an announcement that might as well have been inspired by Taylor Swift’s ''We Are Never Ever Getting Back Together.'' The Cincinnati-based company says it will pour $7.5 billion into a share buyback program and double down on a post-Albertsons growth strategy. That includes investing in lower prices for shoppers and higher wages for associates.

"Kroger is moving forward from a position of strength,” said Rodney McMullen, Kroger's chairman and CEO, in the announcement. “Our go-to-market strategy provides exceptional value and unique omnichannel experiences to our customers, which powers our value creation model. We look forward to accelerating our flywheel to grow alternative profit businesses and generate increased cash flows.”

The merger was first announced in 2022, and since then, the two companies have been slogging through regulatory and legal hurdles to prove the combined companies, which would have more than 5,000 stores and 700,000 employees, would not violate antitrust concerns. However, Kroger's stock price rose as the deal's fate was increasingly in doubt. (The reverse has been true for Albertsons’ shares.)

Not only do observers like the impact that stock buyback will have, “We remain view developments of the past two days as a positive, removing a key overhang for shares,” writes Rupesh Parikh, who follows the company for Oppenheimer. “Kroger management has executed quite well in a difficult grocery backdrop, in our view, and we now await a new strategy update.” He also notes that Kroger has indicated that the company is not obligated to pay that $600 million termination fee.

Krisztina Katai, who follows Kroger for Deutsche Bank, also sees Kroger’s suddenly single state as positive. “A merger termination allows the company to refocus on its core business and strategic initiatives, rather than undertaking a complex and potentially challenging integration.”