In December of 2024 U.S. District Judge Adrienne Nelson put a pin in the bubble of Kroger’s attempt to merge with Albertson’s Supermarket. The proposed $24.6 billion merger between Kroger and Albertsons has encountered significant legal obstacles, with federal and state courts issuing preliminary injunctions that effectively halt what would have been the largest supermarket merger in U.S. history.

Almost immediately after the ruling, Albertsons called off the $25 billion merger putting an end (for now) to the deal. Albertsons also sued Kroger for breach of its contract agreement, alleging Kroger caused the merger to be blocked. Albertsons said that Kroger failed to exercise its “best efforts” and to take “any and all actions” to secure regulatory approval of the merger.

According to industry sources familiar with the merger contract Kroger would owe Albertson’s $600 million as a breakup fee if the deal does not go through. Either way, it’s turning into an expensive venture as the two companies’ combined total to more than $1 billion in costs associated with the deal to date

Legal Developments

Federal Court Decision
Judge Nelson in Oregon granted the Federal Trade Commission’s request for a preliminary injunction, following a comprehensive three-week hearing that concluded in September. The injunction will remain in effect while the FTC conducts its administrative proceeding, scheduled to begin October 1.
State-Level Challenges
Washington State Superior Court Judge Marshall Ferguson issued a separate preliminary injunction, citing violations of state antitrust laws. A third lawsuit remains pending in Colorado, further complicating the merger’s prospects.

Key Issues and Judicial Reasoning

Competition Concerns
Judge Nelson explicitly rejected the companies’ argument that the merger was necessary to compete with Walmart, Amazon, and Costco. The court determined that traditional supermarkets operate in a distinct market segment from mass merchandisers and club stores.
Divestiture Plan Inadequacy
The proposed remedy of selling 579 stores across 18 states and Washington, D.C., to C&S Wholesale Grocers was deemed insufficient to maintain competition. The court noted that C&S currently operates only 23 supermarkets, raising concerns about its ability to effectively manage such a massive expansion.

Market Impact

Stock Performance
Following the announcement, Kroger’s shares rose 5.1% to $60.73, while Albertsons’ stock declined 2% to $18, reflecting market uncertainty about the deal’s future.
Industry Scale
The combined entity would have created a retail giant operating nearly 5,000 stores across 48 states, employing approximately 720,000 workers. This scale raised significant antitrust concerns about market concentration and potential impacts on consumer choice.

Financial Implications

Deal Structure
The merger agreement includes a $600 million breakup fee if the deal fails to close due to regulatory obstacles. This substantial fee underscores the significant financial stakes involved for both companies.
Competitive Landscape
The proposed merger was designed to create a more formidable competitor to Walmart, which currently controls approximately 22% of the U.S. grocery market. However, the courts’ decisions reflect a broader concern about maintaining competition within the traditional supermarket sector.

Industry Implications

This case may represent a significant shift in antitrust enforcement under the Biden administration, particularly regarding retail market consolidation. The decisions suggest that regulators and courts are taking a more stringent approach to large-scale mergers that could potentially reduce competition, even when companies argue they need such combinations to compete with larger rivals. The rulings also set a precedent for future retail mergers, emphasizing the distinction between traditional supermarkets and other retail formats, and the importance of maintaining competition within specific market segments.