EFiled: Dec 14 2024 04:34PM EST

Transaction ID 75228023
Case No. 2024-1276-LWW
IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE

ALBERTSONS COMPANIES, INC.,

Plaintiff, C.A. No. 2024-1276-LWW

v.
Redacted Public Version
Filed: December 14, 2024
THE KROGER COMPANY,

Defendant.

VERIFIED COMPLAINT

Plaintiff Albertsons Companies, Inc. (“Albertsons”), by and through its

attorneys, for its Verified Complaint against The Kroger Company (“Kroger,” and

in conjunction with Albertsons, the “Parties”) alleges as follows:

PRELIMINARY STATEMENT
1. For many Americans, the local supermarket is a trusted brand and an

iconic feature of the community. It is a place where American families spend, on

average, nearly six percent of their disposable income and where they depend on

access to affordable nutrition. On October 14, 2022, Albertsons and Kroger, who

collectively own and operate more than 30 of America’s trusted grocery brands,

announced that they had agreed to merge after signing an agreement (the “Merger

Agreement”)1 by which Kroger would acquire Albertsons in a transaction valued at

1
Capitalized terms not otherwise defined herein have the meanings ascribed to them in the
Merger Agreement.

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 almost $25 billion (the “Merger”). The transaction was not just a boon to

Albertsons’ stockholders—after the announcement, Albertsons’ stock price closed

at a 32.8% premium to the unaffected stock price—it also would have benefitted

American consumers by creating a combined company with the necessary scale to

drive down prices, invest in higher quality products, promote and protect consumer

choice in the face of expanding industry behemoths (such as Walmart, Costco,

Target, and Amazon), and protect union jobs. For many American communities,

this transaction represented hope for the continued viability of the local grocery

stores that have sustained their communities for generations.

2. But Kroger derailed the merger after suffering a classic case of buyer’s

remorse. At first, Kroger was eager to acquire Albertsons, and it willingly assumed

stringent obligations in the Merger Agreement to do everything necessary to close

the Merger as quickly as possible. Obtaining the necessary antitrust clearances was

at the top of the list. As both Albertsons and Kroger knew when negotiating the

Merger Agreement, the ability to close the Merger depended on obtaining approval

from the Federal Trade Commission (“FTC”) and relevant state regulators, which in

turn would require Kroger, as the surviving company, to divest a substantial number

of supermarkets and other assets to ensure that the Merger would comply with

antitrust law and achieve its aim of promoting competition in communities across

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 the country. Accordingly, the Parties agreed to a specific series of escalating

obligations on the part of Kroger, first to exercise “best efforts” and then, in the face

of any threatened regulatory action to block the Merger, to take “any and all actions”

necessary to “eliminate each and every impediment” to closing the Merger.

3. But Kroger later had second thoughts after a negative market reaction

to the Merger and falling post-pandemic profits, and it decided it would go through

with the deal, if at all, only on terms far more advantageous to Kroger than those for

which it had bargained. Immediately after the Merger was announced, Kroger

received sharp criticism from rating agencies, saw its stock price decline, and faced

pushback from politicians. The day after the Merger announcement, Kroger’s stock

dropped by 7.3%. S&P Global Ratings (“S&P”), Moody’s Investor Service

(“Moody’s”), and DBRS Morningstar (“Morningstar”) all published negative

reports. Both Moody’s and S&P highlighted the stress the Merger would put on

Kroger’s debt levels and questioned whether Kroger would be able to maintain its

commercial-grade credit rating. Kroger also faced highly public political

opposition—including having its and Albertsons’ executives called before a U.S.

Senate Subcommittee to be grilled on the Merger the month after the deal was

signed. At the same time, net profits for Kroger and Albertsons fell as purchasing

trends abated after COVID: whereas during the pandemic, customers had shifted

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 their food purchasing to grocery stores and away from restaurants and had

consolidated their shopping in a fewer number of stores, those trends reversed.

4. In the face of these headwinds, rather than take the steps it knew would

give the Merger the best chance to succeed, and which it had agreed to take, Kroger

put itself first. Despite knowing better, Kroger squandered its credibility with

regulators from the outset by proposing a plainly indefensible divestiture package

that elevated Kroger’s bottom line over its contractual obligations to Albertsons to

put forward a tenable divestiture proposal. Kroger then deepened that rift with

regulators by refusing to adjust its proposed divestiture package in response to

regulators’ predictable and readily addressable feedback.

5. Kroger compounded these breaches by turning away divestiture buyers

with long track records of successfully running large-scale retail grocery businesses

and instead selecting a bidder whose primary experience was as a wholesaler. And,

although obligated by contract to work with Albertsons in good faith, Kroger kept

Albertsons in the dark about regulatory strategy and ignored Albertsons’ suggestions

for how to get the Merger approved.

6. Instead of complying with its contractual obligations to exercise “best

efforts” and to take “any and all actions” to get the Merger approved, Kroger

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 prioritized its own financial self-interest and refused to do what was required to close

the deal. It therefore breached the Merger Agreement at least by:

a. Failing to divest an adequate package of up to 650 stores to

satisfy regulators’ concerns;

b. Failing to divest an adequate package of non-store assets (like

banners, technology, and private label brands) to satisfy

regulators’ concerns;

c. Delaying its engagement with regulators and failing to respond

adequately to regulators’ questions and concerns;

d. Mismanaging the process of identifying a divestiture buyer; and

e. Failing to cooperate with Albertsons in good faith.

7. Ultimately, the FTC (joined by several states) and the states of

Washington and Colorado each filed a separate lawsuit to enjoin the Merger.

8. On December 10, 2024, and as a direct result of Kroger’s malfeasance,

the United States District Court for the District of Oregon and the King County

Superior Court in the State of Washington issued injunctions blocking the Merger

on antitrust grounds. The Merger’s failure has significant consequences for

Albertsons and its stockholders, who endured more than two years of uncertainty,

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 spent hundreds of millions of dollars preparing for the Merger, and now will lose the

significant premium on their shares Kroger committed to pay.

9. As a direct result of Kroger’s willful breaches, Albertsons’ stockholders

suffered billions of dollars in damages, and the American public suffered the loss of

a supermarket option offering lower prices and increased choice. This action seeks

to hold Kroger responsible for the harm it caused.

SUMMARY OF ALLEGATIONS

10. The impact of Kroger’s breaches and the resulting failure of the Merger

are particularly significant given the state of the grocery industry, which in recent

years, has undergone a fundamental shift. Retail giants like Walmart, Costco,

Amazon, and Target increasingly have focused on selling food as part of their

diverse product offerings. Because of their massive scale, those retailers can sell

groceries at rock-bottom prices—often lower than Albertsons’ prices. At the same

time, consumers are spreading their shopping trips across several different retailers,

searching for value wherever they can find it. Together, these dynamics pose an

existential threat to Albertsons and Kroger, and to their ability to serve their

customers.

11. The Merger was an ideal solution to this problem. The combined

company would have been more competitive with the behemoths, benefitting from

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 improved economies of scale by allowing it to expand in new locations at lower

costs, to operate with more efficient overhead, and to take advantage of a national

supply chain, an enhanced distribution infrastructure, and the ability to borrow at a

lower cost of capital. From these synergies and others, Albertsons and Kroger

expected that the combined company would deliver a more diverse and lower-cost

product offering to consumers, while still providing fair-paying union jobs. The

combined company also could invest in new projects related to advertising and

digital sales, leveraging Albertsons’ and Kroger’s larger combined set of consumers

and consumer data to provide added value to customers nationwide. All of that

would have allowed the combined company to better compete with retail giants

Walmart, Costco, Amazon, and Target, and other grocery competitors.

12. Kroger and Albertsons understood from the beginning that their ability

to close the Merger was dependent upon obtaining FTC and state regulatory

approval. And despite all the benefits that would flow from the Merger, both Parties

expected that the Merger would face scrutiny by antitrust regulators due to the

overall size of the transaction and the fact that Kroger and Albertsons operate in a

limited number of overlapping geographic areas.

13. To address those concerns, as is typical in large retail mergers,

Albertsons and Kroger contemplated that the FTC and state regulators would require

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 Kroger to divest certain assets. Thus, from early on in their negotiations, the Parties

understood that antitrust regulatory approval was likely to require (1) a large

divestiture; (2) careful selection of the stores to be divested based on sound economic

modeling and neutral, objective criteria; and (3) the inclusion of other assets

regulators deemed essential to the successful operation of the divested business, like

“banners” (the stores’ trade names), private label brands, distribution centers, supply

chain agreements, and information technology assets.

14. Albertsons knew from the start that regulatory approval in general and

a robust divestiture in particular would be critical to the Merger’s ability to close.

As a result, Albertsons began negotiations by insisting on significant assurances that

Kroger would take all necessary steps to secure regulatory approval and close the

Merger. Albertsons raised the need for these assurances at the outset of the Parties’

negotiations. They were in the initial draft of the Merger Agreement, which was

exchanged in August 2022. And those provisions remained largely unchanged in

the final Merger Agreement that the Parties signed two months later, on October 13,

2022.

15. The core assurances Albertsons insisted on during negotiations were

embodied in three provisions. Those provisions impose on Kroger a series of

escalating obligations around its efforts to obtain regulatory approval:

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 a. First, Kroger generally agreed to use “reasonable best efforts” to

satisfy all closing conditions “as promptly as reasonably

practicable.”

b. Second, Kroger assumed a more stringent obligation to use its

“best efforts”—not limited by any standard of reasonableness—

“to avoid, eliminate, and resolve any and all impediments under

any Antitrust Law . . . so as to enable the Closing to occur as

promptly as practicable.” That “best efforts” provision explicitly

required Kroger to divest any assets and make any changes to its

operations that were necessary to obtain antitrust approval.

c. Third, if a regulator threatened or instituted an antitrust

challenge, Kroger committed to take “any and all actions”

necessary to “eliminate each and every impediment under any

Antitrust Law” to closing the Merger. This “any and all actions”

obligation is an exceptionally high standard: Kroger had to

resolve antitrust concerns, as Delaware courts have put it, “come

hell or high water.”

16. There was only one caveat to Kroger’s “best efforts” and “any and all

actions” obligations: those commitments did not require Kroger to divest more than

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 650 physical stores. Albertsons bargained hard for this 650-store threshold, rejecting

Kroger’s repeated proposals for a lower cutoff. Indeed, Albertsons withheld its

consent to the Merger until Kroger’s CEO personally committed to divest 650 stores

and shook hands on that term with the CEO of Albertsons’ largest stockholder.

17. The Merger Agreement contained no other limitations on what Kroger

was required to do to facilitate the close of the Merger. For example, nothing in the

Merger Agreement limited which stores Kroger had to divest. In other words, to

satisfy its “best efforts” and “any and all actions” obligations, Kroger was required

to divest any combination of up to 650 stores that would satisfy regulators. It could

not (as it later tried to do) select plum stores to retain and offer up largely

unprofitable stores for divestiture. Similarly, the Merger Agreement did not in any

way limit Kroger’s obligation to part with assets other than stores themselves. For

example, Kroger had an unlimited obligation to sell any non-store assets such as

store banners, private label food brands, distribution centers, and IT systems, if doing

so would resolve regulators’ antitrust concerns.

18. As a result of the procompetitive aspects of the Merger and the Parties’

clear commitment—at least on the face of the Merger Agreement—to offer a robust

divestiture, the transaction should have been able to close. So long as Kroger

fulfilled its obligations to provide necessary non-store assets and divest a reasonable

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 set of stores, regulatory approval could have been achieved. Nonetheless, Kroger

owed Albertsons yet further obligations, to help ensure that the Parties’ incentives

remained aligned and Kroger would work diligently to ensure the Merger closed.

19. First, because of Kroger’s “best efforts” and “any and all actions”

promises, Albertsons agreed that Kroger would have the principal responsibility for

devising and implementing a strategy to obtain antitrust approval. But Kroger

committed to “cooperate” with Albertsons in the antitrust clearance process; consult

with Albertsons before meeting or communicating with regulators; give Albertsons

the opportunity to attend and participate in such meetings; consider Albertsons’

strategic views; and “work together in good faith to resolve [any] disagreement.”

Thus, Kroger was required to actively include and engage with Albertsons

throughout the regulatory review process, even though the final call on decisions if

the Parties disagreed on a particular strategy was Kroger’s to make.

20. Second, the Parties agreed that Kroger would pay Albertsons a $600

million termination fee if the Merger failed to close by the outside date set in the

Merger Agreement. The Parties knew that this termination fee, totaling less than

2.5% of the total merger consideration, was lower than other mergers of comparable

size and complexity. Albertsons was willing to accept this smaller termination fee

because Kroger was contractually obligated to use its “best efforts” and to take “any

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 and all actions” to make sure the Merger would close. As further protection to ensure

Kroger’s full commitment to the Merger, Albertsons expressly negotiated for an

additional independent right, beyond the $600 million termination fee: in the event

the Merger failed, Albertsons could seek all legally available damages for any

“Willful Breach” of the Merger Agreement by Kroger.

21. Yet, despite all its obligations in the Merger Agreement, Kroger did not

hold up its end of the bargain. Kroger failed to act promptly to secure regulatory

approval, and it repeatedly delayed its responses to and its interactions with federal

and state regulators. When it did engage, Kroger took untenable positions and failed

to answer routine questions about its assumptions and data for proposed divestitures.

Kroger also failed to adjust its positions in response to regulators’ feedback. And

Kroger ignored Albertsons’ recommended strategy and general best practices to

obtain regulatory approval at every step. Kroger’s conduct created frustration and

distrust among regulators, who repeatedly informed Kroger that it had failed to

address their concerns, and ultimately caused an unprecedented litigation onslaught

where the Parties were sued contemporaneously in three separate jurisdictions.

22. Indeed, Kroger willfully squandered every opportunity to obtain

antitrust approval through a divestiture. As Albertsons repeatedly told Kroger, and

as Kroger should have known from its own previous merger clearance experience,

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 the Merger would have the best chance of obtaining FTC approval if Kroger

proposed a robust divestiture package within the first thirty days after signing the

Merger Agreement. Such a package would (at a minimum) include a set of stores

designed to allay regulators’ local concentration concerns, based upon thorough

economic analysis. Putting a serious divestiture offer on the table right from the

start would make FTC staff reluctant to recommend that the agency block the Merger

and would provide a solid platform from which to negotiate a solution. Kroger chose

not to do this.

23. Instead, Kroger proposed an initial divestiture package that was facially

deficient. When Kroger first met with the FTC in December 2022, Kroger proposed

to divest only 238 stores—just over one third of the 650-store ceiling in the Merger

Agreement and nearly half of the 440 stores that Kroger’s own expert’s economic

analysis demonstrated would be needed to offer to close the deal. It quickly became

clear that Kroger had not used any supportable basis to select these stores: in

meetings with the FTC, Kroger could not even answer basic questions about the

economic analysis underlying its proposal or the principles underlying the selection

of the stores to be divested. That, of course, was because the proposal reflected no

objective economic analysis: Kroger cherry-picked the Kroger stores included in the

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 238-store set based on their poor financial performance, not because their divestiture

would alleviate the FTC’s concerns about localized concentration of stores.

24. Days after the initial December 2022 meeting, the FTC issued a second

request (the “Second Request”) to both Parties. A second request is universally

understood by antitrust practitioners as putting the Merger at risk for future litigation

and requiring an extensive series of document productions and engagements with

the FTC regarding the competitive effects of the Merger.

25. The FTC’s issuance of a Second Request triggered Kroger’s obligation

to take “any and all actions” to remove antitrust impediments, requiring Kroger to

address each and any concern raised by regulators during the Parties’ negotiations

with the FTC.

26. Around the same time, the Attorneys General of multiple states,

including Washington, which sent Albertsons and Kroger a Civil Investigative

Demand on January 6, 2023, initiated investigations into the Merger, further

heightening the risk of enforcement action and the need for Kroger to take “any and

all actions” to either avoid or win any litigation challenging the Merger. Throughout

their investigations, the states and the FTC coordinated their actions closely, sharing

all material information they obtained from the Parties and frequently joining the

same meetings with the Parties.

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 27. Any buyer that was serious about making “best efforts,” let alone taking

“any and all actions” to obtain antitrust approval, would have responded to the initial

FTC meeting, the FTC’s issuance of the Second Request, and the initiation of

multiple state Attorney General investigations by immediately proposing a new

divestiture package based on rigorous economic analysis.

28. Not Kroger. Instead, Kroger stalled, resisting any effort to improve its

divestiture proposal for months. Rather than address the FTC’s concerns when next

meeting with the FTC in March 2023, Kroger presented the same indefensible

proposal to divest 238 cherry-picked stores, with a buyer to be named later. This

willfully obstructive and high-risk tactic was inexplicable, except as a decision by

Kroger to press its own independent economic best interests over meaningful

engagement with the FTC about resolving the agency’s concerns.

29. Kroger’s initial shirking of its obligations under the Merger Agreement

escalated to outright repudiation of its obligations as the Parties discussed

identifying a divestiture buyer. Kroger waited for months after signing the Merger

Agreement before even starting to court potential divestiture buyers. When Kroger

finally began that process, it received ample interest: approximately 60 potential

bidders signed non-disclosure agreements to initiate talks with Kroger in the first

half of 2023, including established, large-scale grocery retail competitors like

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 These companies were strong candidates: they had the experience, resources, and

scale to acquire stores and operate them as strong competitors from Day One, thus

allaying concerns about grocery competition in the vicinities of those stores.

30. Kroger kept Albertsons largely in the dark about the identities of these

potential buyers and Kroger’s negotiations with them, rejecting Albertsons’ pleas to

be included in the process. Kroger waited until August 2023, and then only told

Albertsons that it had shortlisted three bidders—C&S Wholesale Grocers (“C&S”),

and —while concealing from Albertsons that it had

eliminated and other qualified buyers from consideration.

31. On September 8, 2023—nearly a year after the Merger Agreement was

signed, and nine months after the FTC made its Second Request—Kroger finally

entered into an Asset Purchase Agreement with C&S (the “APA”). Kroger’s choice

of C&S as the divestiture buyer came with obvious risks. C&S was primarily a

grocery wholesaler and operated only 23 retail grocery locations at the time it was

selected. Lacking a large-scale grocery retail business of its own, C&S would need

significant management and transition resources from Kroger and Albertsons to

operate the divested stores effectively. C&S was subject to heightened scrutiny by

the FTC because it previously had sold numerous retail locations in the early 2000s

and 2010s just a few years after purchasing them, which would predictably cause the

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 FTC to be concerned that C&S might attempt another quick sale with divested assets.

Moreover, C&S would need significant new financing to purchase up to 650 stores.

These attributes of C&S were bound to draw scrutiny from antitrust regulators, given

that any plan to divest stores to C&S would necessarily be premised on C&S’s ability

to operate those stores as strong local competitors. Selecting C&S as a divestiture

buyer was thus highly risky and inconsistent with Kroger’s obligations to make its

“best efforts” and take “any and all actions” when buyers such as were

available. Yet, Kroger made this selection without informing Albertsons of the other

potentially stronger bidders.

32. Once it selected C&S, it was incumbent on Kroger to demonstrate to

the FTC that Kroger would divest the assets C&S would need to thrive as a

competitor. Kroger failed on this front too. Kroger’s initial APA with C&S was

also grossly deficient. It provided for the divestiture of just 413 stores, many of

which still were chosen based on Kroger’s financial interests rather than the required

objective and neutral economic analysis. The APA also failed to include the non-

store assets that Kroger knew any potential buyer, as well as the FTC, would regard

as essential to making the divested stores competitive, such as key IT infrastructure

and private label food products.

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 33. Over a number of months, both Albertsons and C&S urged Kroger to

address these deficiencies by divesting a cohesive selection of 650 stores and non-

store assets that would meaningfully address competitive concerns. Kroger ignored

these entreaties and focused on its own economic interests, to the detriment of its

credibility with regulators and its ultimate ability to negotiate a solution that would

avoid litigation. Demonstrating the seriousness of Kroger’s blunders, the

Washington Attorney General highlighted in its opening statement at trial an

example of a store that Kroger’s management had suggested be included in the

divestiture package, but which was vetoed by Kroger’s CEO Rodney McMullen

because “this store has real estate that is worth a lot.” In its opinion enjoining the

Merger, the Washington Court ultimately concluded—citing that very example—

that “Kroger kept the best performing assets for itself.” As the Washington Court

put it: “Where it could, Kroger followed a simple rule: if a store was a ‘good

EBITDA producer, . . . we wouldn’t want to divest.’”

34. Similar self-serving conduct by Kroger occurred throughout its

negotiations with the FTC and other regulators.

35. In addition to deficient interactions with the regulators and proposed

divestiture buyers, Kroger failed to adequately inform and cooperate with

Albertsons, as the Merger Agreement required. Throughout the Parties’ interactions

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 with regulators from October 2022 through February 2024, Kroger failed to

meaningfully include Albertsons in strategy sessions with its legal team and experts,

provide updates to Albertsons about the bases for its divestiture proposal, explain its

methodologies for analyzing local competition effects, or consider feedback from

Albertsons about the proper process and substance for engaging with regulators. At

each turn, Kroger failed to meaningfully engage and respond to Albertsons’

feedback. Instead, Kroger acted consistent with what it perceived to be in its

financial interest, spending months delaying responses to regulators and then

providing half-baked proposals that were objectively destined to fail.

36. Kroger’s recalcitrance toward cooperating with Albertsons was the

opposite of Albertsons’ approach for working with Kroger. Albertsons offered to

meet with Kroger’s experts and repeatedly provided Kroger with economic analyses

and models from its own experts reflecting a divestiture proposal to remedy the

shortcomings of Kroger’s proposals and to fully address the stated concerns of the

FTC and state regulators. In numerous instances, Albertsons pushed Kroger to add

more stores and assets to its proposed divestitures, engage more quickly with agency

officials, and provide comprehensive, economic-based rationales for its offers. And

Albertsons pleaded with Kroger to offer a divestiture closer to the 650-store

threshold, selected through rigorous economic analysis, and buttressed by key non-

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 store assets that would allow a divestiture buyer to become a viable competitor.

Kroger brushed this input aside and omitted it from submissions to the FTC,

eschewing its duty of cooperation under the Merger Agreement.

37. Finally, Kroger failed to make a best and final offer to the FTC with the

terms and on a timing that could allow the deal to close, dooming the Merger. As a

result of Kroger’s conduct, the Parties lost out not only on their opportunity for a

pre-litigation settlement but also compromised their defense in the eventual

litigation.

38. On September 13, 2023, Kroger met with the FTC to discuss its new

proposal to sell 413 stores to C&S. The FTC reiterated the same concerns from

nearly a year prior regarding how Kroger was selecting stores to divest. The FTC

thereafter met or communicated with Kroger multiple times in October 2023,

seeking additional information about Kroger’s proposal, which Kroger did not

provide. Nearly a year after Kroger first engaged with the FTC, on November 22,

2023, the FTC informed Kroger that its 413-store offer remained woefully

inadequate. Kroger still had not addressed the FTC’s questions about the economic

methodology for its divestiture offer, nor had it addressed the FTC’s prior concerns

with how Kroger was defining a relevant product market. As a result, the FTC wrote

that Kroger’s proposed divestiture failed to address “dozens, if not hundreds, of

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 ‘markets’ where the [M]erger would be presumed likely to enhance market power.”

And yet, between November 2023 and January 2024, Kroger made just small

adjustments to the number of stores it was willing to divest, first offering 510 stores

and then 541 stores, but still failing to provide any additional explanation for how it

was selecting those stores. When two of the FTC Commissioners convened “last

rites” meetings on February 22, 2024, with litigation imminent, Kroger still refused

to address the FTC’s longstanding concerns, even though these were the same

concerns Albertsons and C&S had been pressing for Kroger to address for months.

39. In early 2024, as a direct result of Kroger’s failure to take “any and all

actions” to remove antitrust impediments, the FTC (joined by several states) and the

states of Washington and Colorado each filed a separate lawsuit to enjoin the

Merger. While Albertsons and Kroger entered those lawsuits at a disadvantage

because of Kroger’s willful blunders in the pre-litigation regulatory process, Kroger

had a final opportunity to save the Merger by pivoting to a 650-store divestiture

package proposed by C&S that was both responsive to the FTC’s competitive

concerns and within Kroger’s obligations under the Merger Agreement. Instead,

Kroger proposed a more limited 579-store package, knowing that it would be subject

to more criticisms by the FTC and had a lower probability of passing muster with a

court. That 579-store package remained highly vulnerable to attack by antitrust

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 regulators. Indeed, even Kroger’s own economics expert could not fully justify the

package and was forced to concede at trial in the FTC’s enforcement action that the

Merger was presumptively anticompetitive in nearly two dozen markets, taking the

divestiture package into account.

40. On December 10, 2024, the District of Oregon granted the FTC’s

motion for a preliminary injunction, dooming the transaction. The judge highlighted

Kroger’s hand-picked economics expert’s concession that at least 22 markets were

presumptively unlawful, holding: “This evidence on its own is sufficient to find that

the divestiture will not mitigate the merger’s anticompetitive effect such that it is no

longer likely to substantially lessen competition.” The Oregon Court also repeatedly

highlighted the glaring deficiencies in Kroger’s divestiture package, particularly in

light of C&S’s inexperience as a retail operator.

41. Had Kroger lived up to its contractual obligations, this Merger would

have succeeded. Instead, Kroger flagrantly violated its obligations to take “any and

all actions” to remove antitrust impediments; to “cooperate” with Albertsons; to use

“best efforts” to obtain antitrust approval; and to use “reasonable best efforts” to

satisfy closing conditions generally. As a result, Albertsons has endured more than

two years of limbo, during which time it has been blocked from taking on new

projects, making new investments, or exploring alternative transactions it would

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 otherwise pursue. Further, Albertsons’ stockholders have been denied the multi-

billion-dollar premium Kroger agreed to pay for Albertsons’ shares and suffered

from a decrease in stockholder value. Meanwhile, American consumers who value

fresh, high-quality food have been deprived of an opportunity for lower prices and

greater choice and competition in the relevant market(s).

PARTIES

42. Albertsons is a Delaware corporation headquartered in Boise, Idaho. It

is one of the largest food and drug retailers in the United States. As of September 7,

2024, Albertsons operated 2,267 stores and 1,726 pharmacies across 34 states and

the District of Columbia. Albertsons serves 36.8 million customers per week and,

as of September 7, 2024, employed approximately 285,000 associates.

43. Kroger is an Ohio corporation headquartered in Cincinnati, Ohio. As

of February 3, 2024, Kroger operated 2,722 supermarkets, of which 2,257 had

pharmacies and 1,665 had fuel centers, across 35 states and the District of Columbia.

As of February 3, 2024, Kroger employed approximately 414,000 associates.

JURISDICTION

44. Subject matter jurisdiction is proper in this Court pursuant to 8 Del. C.

§ 111(a), which confers jurisdiction over “[a]ny civil action to interpret, apply,

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 enforce or determine the validity of . . . [a]ny agreement, certificate of merger or

consolidation,” under 8 Del. C. § 251, which governs the Merger.

FACTUAL ALLEGATIONS
I. Albertsons and Kroger Face Fierce Competition, Increasingly
Dominated by Walmart, Amazon, and Other Diversified Behemoths
45. Albertsons and Kroger have operated retail grocery stores since 1939

and 1883, respectively. Unlike many of their competitors, Kroger and Albertsons

have majority-union workforces.

46. The grocery business has become increasingly competitive over the last

few decades. While thirty or forty years ago, customers commonly would choose

one store at which to do their primary grocery shopping for the week, customers now

typically split their grocery shopping across multiple trips and multiple formats,

including online.

47. At the same time, Walmart, Costco, Amazon, and Target have emerged

as significant grocery competitors. These competitors have immense scale and

diversified businesses, including between grocery and non-grocery products. Their

workforces are mostly non-union, resulting in lower labor costs. These factors,

among others, enable them to consistently offer low prices to their customers.

48. Other new competitive threats also have emerged. Foreign-owned

grocery companies like Ahold Delhaize, Aldi, and Lidl are rapidly expanding in the

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 U.S. market. Other historically non-food retailers like Dollar General have

recognized an opportunity for growth in grocery and have invested aggressively in

the space. Once-niche natural food and organic grocers like Whole Foods, Sprouts,

and Trader Joe’s have expanded and diversified their offerings. And ethnically-

focused sellers like H Mart, Patel Brothers, Fiesta Mart, and 99 Ranch Market have

expanded from localized chains to regional competitors, operating between 50 and

nearly 100 locations each.

49. As a result, so-called “traditional grocery stores” like Albertsons and

Kroger have faced increased pressure on price, quality, and diversity of their

offerings and have been losing market share to both global giants and agile new

entrants.

50. During the COVID-19 pandemic, Albertsons and Kroger both enjoyed

a short period of outsized profitability; overall grocery revenue rose as customers

shifted from restaurants to grocery stores and consolidated their weekly trips. As a

result, grocers like Albertsons were able to hire new employees and invest in long-

term projects like increasing digital sales. In recent years, however, that trend has

reversed, and competition in grocery retail has grown even more fierce.

51. To address this increasing competition, Albertsons has implemented

various initiatives to leverage its existing scale and reduce its costs, for example,

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 increasing its digital sales and improving overall productivity in its stores. Those

changes have allowed Albertsons to offset a certain amount of food-based inflation

and some of its rising labor costs. But these measures alone did not and could not

do enough to allow Albertsons to lower its product prices to compete effectively

with Walmart, Costco, Amazon, Target, and the other competitors.

52. If dedicated grocery stores like those operated by Albertsons were

forced to close due to their inability to match the prices of their superstore

competitors, consumers would suffer. Through vigorous competition, Albertsons

has cultivated many customers who choose to shop at its stores—either instead of or

in addition to other grocery options. These consumers would lose a desirable

alternative if they were forced to shop for groceries only at Walmart, Costco, and

their ilk.

II. Kroger Approaches Albertsons, Proposing a Merger

53. Beginning in 2021, the Albertsons board of directors engaged in a

strategic review of the ways in which it could maximize stockholder value in the

face of increasing pressure from larger-scale competitors. One of the options that

the board explored was a potential transaction by which Albertsons might be

acquired. From these discussions, and after engaging in a process to identify

potential buyers, Albertsons entered negotiations with another company

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 (“Company A”) regarding Company A’s interest in acquiring Albertsons. After

Albertsons expended significant effort on the potential sale, including engaging in

due diligence, Company A informed Albertsons in February 2022 that it did not wish

to pursue a transaction at that time.

54. Shortly thereafter, Albertsons publicly announced on February 28,

2022 that it had commenced a Board-led review of potential strategic alternatives

aimed at enhancing the Company’s growth and maximizing stockholder value, and

weeks later, in April 2022, representatives of Kroger approached Albertsons’ outside

financial advisor to discuss the possibility of Kroger acquiring Albertsons.

Albertsons considered an acquisition by Kroger to be an attractive opportunity. The

deal would result in a company of considerable scale: together, Kroger and

Albertsons own and operate approximately 5,000 retail stores and 4,000 retail

pharmacies. They also employ approximately 700,000 employees, many of whom

are union members, across 48 states. This expanded scale would enable the

surviving company to obtain more favorable terms from suppliers, improve its long-

term supply chain management, and centralize administrative functions. In turn, the

newly-merged company would use the cost savings generated by these efficiencies

to deliver lower prices and expanded product offerings to customers. The surviving

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 company would also be better situated to invest in capital improvements, online

shopping operations, and non-grocery business segments, including pharmacies.

55. Critically, the combined company would be more competitive against

retail giants like Walmart, Costco, Amazon, and Target, benefiting consumers.

Joining forces would allow the combined entity to offer more competitive prices

without compromising their fundamental business model.

56. A merger between Kroger and Albertsons would also allow the

companies to build a more valuable retail media platform than either company could

build on its own. Like other grocery retailers, Kroger and Albertsons earn revenue

by selling digital and physical media space for advertisements of consumer-

packaged goods, and by providing advertisers with insights on consumer purchases

in response to advertisements. This non-grocery revenue can enable a virtuous

cycle: profits from retail media allow the companies to invest more in lowering

grocery prices; lower prices attract more shoppers; increasing customer traffic raises

the value of the advertising space the companies are able to sell; and greater future

media revenue enables further grocery price reductions. However, today, Kroger

and Albertsons lack the scale and resulting network effects of superstores like

Walmart, which generate much greater retail media revenues. Building a single,

nationwide retail media platform for Albertsons and Kroger, instead of two separate

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 platforms with only regional coverage, would also generate cost savings that could

be passed on to consumers.

57. Moreover, while there are certain geographic markets in which

Albertsons and Kroger both operate, the two companies have different overall

geographic footprints. Albertsons stores are predominantly located in the Northeast

and on the West Coast; Kroger has no presence in the Northeast. Kroger stores are

predominantly located in the Midwest, Southeast, and West; Albertsons has no

presence in the Midwest or Southeast. A merger between Albertsons and Kroger

would thus create a grocery chain with broader geographic scope across the country,

improving and streamlining supply chain and distribution resources, as well as

unlocking new value from existing resources like consumer data.

58. While Albertsons saw great upside in a potential deal with Kroger from

Kroger’s initial outreach, it needed to receive assurances from Kroger that it would

do all that was necessary to close the deal. During the time from negotiations to

execution of a merger agreement, to obtaining antitrust clearance, to closing,

Albertsons would have to bear significant transaction costs, including fees for

attorneys and financial advisors, as well as significant costs and employee time for

integration planning.

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 59. Albertsons also knew any agreement to merge would also create a

period of strategic limbo for it between signing and closing. The Merger Agreement,

for example, required Albertsons to commit to significant limitations on its ability

to enter contracts, including leases, above a threshold of $10,000,000. And

Albertsons had to forgo other strategic alternatives at a time of significant and rapid

market evolution.

60. If the Merger never closed, Albertsons’ investment of resources and

effort would go to waste—a risk that was front of mind for Albertsons in the wake

of its recent failed negotiations with Company A.

61. It also was clear to both Kroger and Albertsons that their potential

merger would not achieve its procompetitive aspirations and would face a substantial

risk of being blocked on antitrust grounds unless the Parties pursued a principled and

robust regulatory strategy, including by making divestitures in limited local

geographic areas where Kroger and Albertsons both operated stores.

62. Because the antitrust aspects of any prospective deal between Kroger

and Albertsons were critical, both Parties involved antitrust counsel almost

immediately after Kroger’s initial outreach to Albertsons. Kroger engaged a team

of accomplished, sophisticated antitrust lawyers at Arnold & Porter Kaye Scholer

LLP (“A&P”), including a former Deputy Assistant Attorney General in the

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 Antitrust Division of the U.S. Department of Justice, who had had a front-row seat

for four years to both the Trump and Biden Administrations’ enforcement of antitrust

laws. The A&P antitrust practice group was led by the former Director of the FTC’s

Bureau of Competition from 2013 to 2017. These attorneys and their colleagues

were intimately familiar with what antitrust regulators would require from Kroger

to get the deal done and how the agency’s views could be affected by changes in the

political climate.

63. Through their respective competition attorneys, the Parties discussed

antitrust issues extensively at the very outset of their negotiations, even before

negotiating pricing and other material terms. On May 5, 2022, Kroger’s and

Albertsons’ outside antitrust counsel discussed the geographic overlap of their stores

in select areas and the intense competition that their stores face from a variety of

retailers. The same outside counsel spoke about these topics again on May 11, 2022.

On May 19, 2022, Albertsons CEO Vivek Sankaran met with Kroger CEO Rodney

McMullen to discuss the potential deal, including the importance of developing a

plan to achieve regulatory clearance by divesting specific stores to a qualified third

party.

64. As these deal discussions were ongoing, Albertsons retained Charles

River Associates (“CRA”), an economic consulting firm, to conduct a preliminary

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 economic analysis of the proposed deal. CRA adopted a fulsome approach and

considered each of the 83 metropolitan areas where both Parties operated stores as

part of its analysis. From this analysis, Albertsons formed the view that a substantial

number of divestitures would be required to address competitive issues in many

communities and that a realistic store divestiture figure would be approximately 600

to 650 stores.

65. Kroger engaged CompassLexecon, another economic consulting firm

with significant experience in competition analysis. To Albertsons’ surprise,

Kroger’s consulting economists concluded that only 400 to 500 stores would need

to be divested in a potential merger. Albertsons immediately flagged flaws with this

analysis, including that CompassLexecon had only evaluated competitive effects in

24 metropolitan areas, not all metropolitan areas where both Parties operated stores.

When Albertsons attempted to re-create Kroger’s analysis using similar assumptions

but expanding results to 83 metropolitan areas, it identified hundreds more stores

that presented concentration concerns and thus would likely need to be included in

a divestiture package. Kroger also did not consider either a uniform threshold of

market concentration or specific radius around Kroger and Albertsons stores to

determine overlaps. Nor did it apply a market definition that the FTC was likely to

use in its own analysis. For example, Kroger included club stores like Costco,

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 natural foods stores, and ethnically-focused sellers in its early estimates even though

the FTC had rejected including those stores in prior merger clearance reviews.

Kroger’s approach had the overall effect of significantly undercounting the number

of stores it would likely need to divest.

66. It was also clear from the outset that a successful divestiture package

would require more than merely divesting a certain number of stores. From the

Parties’ initial estimation exercises, there were a large number of overlapping stores

in Los Angeles, San Diego, Chicago, Dallas, Las Vegas, Phoenix/Tuscon, and

Washington, D.C. As a result, the Parties would need to select stores for divestiture

that would alleviate regulatory concerns related to those specific, limited set of local

markets. In effect, Kroger would need to select the “right” stores and accompany

those with key non-store assets, including banners, distribution centers,

manufacturing facilities, and private label brands and products that supported those

stores, so that the regulators would be persuaded that a divestiture buyer would be

able to establish a competitive operation. In short, while the number of stores was

important, divesting other assets would be key to resolving regulatory competition

concerns.

67. Thereafter, the Parties continued to analyze the extent of necessary

divestitures while further negotiating other material terms of a deal.

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 III. Albertsons Bargains for Stringent Requirements for Kroger in Seeking
Antitrust Approval
68. Given the importance of a strong antitrust strategy, coupled with the

risk of immense costs to Albertsons if it became entangled in a deal that never closed,

Albertsons was unwilling to proceed with even drafting a merger agreement—let

alone signing one—unless Kroger committed to make extraordinary efforts to close

the deal, minimizing the risk of transaction failure.

69. On June 25, 2022, Kroger, through its outside financial advisor,

provided Albertsons with a nonbinding indication of interest that described terms

and conditions to be further discussed, including a cap on the number of stores to be

divested to obtain regulatory clearance, the time period for obtaining regulatory

clearance, and the termination fee each Party might have to pay if the transaction

failed to close.

70. During the several weeks following Kroger’s June 25, 2022 opening

proposal, the Parties—through their senior executives, outside counsel, and outside

financial advisors—discussed certain material terms that would need to be included

in any merger agreement, although no draft contract had yet been shared between

the Parties.

71. To proceed with the negotiations, Albertsons demanded assurances that

Kroger was willing to agree to stringent protections. Kroger provided this assurance
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 by indicating early in the Parties’ discussions that it would accept eight key deal

points to mitigate the risk that the Merger would fail. Albertsons incorporated each

of these protections into the first draft of the Merger Agreement, which it sent to

Kroger on August 12, 2022. These protections remained materially unchanged in

all subsequent drafts and were included in the final Merger Agreement, which was

executed on October 13, 2022.

72. First, Kroger and Albertsons both agreed to use “reasonable best

efforts” to satisfy all conditions to closing of the Merger, including but not limited

to antitrust approval, “as promptly as reasonably practicable.” This provision

ultimately appeared in Section 6.3(a) of the final Merger Agreement.

73. Second, in addition to the mutual obligation to use “reasonable best

efforts” to satisfy all closing conditions, Kroger agreed to a separate and higher

standard for its antitrust strategy: Kroger alone would be obligated to use its “best

efforts”—not limited by any standard of reasonableness—“to take . . . any and all

actions necessary to avoid, eliminate, and resolve any and all impediments under

any Antitrust Law . . . so as to enable the Closing to occur as promptly as

practicable.” The “actions” Kroger was required to take included (but were not

limited to) (1) divesting “assets, properties, or businesses”; (2) entering any

“arrangements” needed “to effect the dissolution of any injunction, temporary

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 restraining order or other order in any suit or proceeding” that would otherwise block

the Merger; (3) “changing or modifying any course of conduct regarding [Kroger’s]

future operations”; and (4) taking “any other action that would limit [Kroger] or its

Subsidiaries or Affiliates’ freedom of action with respect to, or their ability to

retain,” any “operations, divisions, businesses, product lines, customers, assets or

rights or interests, or their freedom of action with respect to the assets, properties, or

businesses to be acquired” from Albertsons. This provision ultimately appeared in

Section 6.3(d) of the final Merger Agreement.

74. Third, if any proceeding was “instituted (or threatened) challenging the

Merger as violating any Antitrust Law,” Kroger committed to take “any and all

actions . . . to eliminate each and every impediment under Antitrust Law to close

the [Merger] prior to the Outside Date” (a contractually specified date that could be

extended to no later than approximately two years after signing of the contract). This

“any and all actions” obligation was even more demanding than the “reasonable best

efforts” standard under Section 6.3(a): Kroger was agreeing to remove antitrust

impediments “come hell or high water.” This provision appeared in Section 6.3(e)

of the final Merger Agreement.

75. Fourth, as a further protection for Albertsons’ interest in accelerating

antitrust approval and closing the Merger, the Parties agreed that, unless both Parties

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 consented, neither Party would “enter into any agreement with any Governmental

Entity to delay” the Merger or withdraw its regulatory filing seeking clearance for

the Merger under the Hart-Scott-Rodino Antitrust Improvements Act (“HSR Act”).

This protection would be particularly important once the Parties substantially

complied with a potential second request. At that point, the FTC would have 30

days to either sue to block the Merger or permit the Merger to close—and Albertsons

could insist on holding the FTC to this timeframe, even if Kroger wanted to allow

an extension. By vetoing any proposed timing agreement with the FTC, Albertsons

could ensure that if litigation with the FTC was necessary, it would begin promptly

so Albertsons and Kroger would have time to defend themselves fully, including

through any appeals. This provision appeared in Section 6.3(c) of the final Merger

Agreement.

76. Fifth, Albertsons and Kroger agreed that the sole limit on Kroger’s

obligations to make its “best efforts” and take “any and all actions” in addressing

antitrust issues would be a cap on the total number of stores Kroger could be required

to divest if necessary to address regulators’ antitrust concerns. There was no limit

on Kroger’s obligation to sell any non-store assets such as store banners and

intellectual property to obtain regulatory approval. And there was no limit on the

specific stores Kroger was required to divest. Kroger, in other words, could not

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 simply offer to divest its most unprofitable or otherwise unattractive stores, even if

it offered enough of them to meet the contractual cap on required store divestitures.

This deal point was memorialized in Sections 1.1 and 6.3(d) of the final Merger

Agreement, which respectively (1) defined “Material Divestment Event” as the

divestment of over 650 stores, and (2) provided that the sole limit on Kroger’s “best

efforts” and “any and all actions” obligation was that no Material Divestment Event

would be required.

77. Sixth, the Parties agreed that neither could be cut out of the antitrust

approval process. They agreed to (1) “cooperate in all respects” on regulatory

submissions and documents filed in any litigation or other proceeding; (2) promptly

inform each other of any communication from the government or any

communication regarding a proceeding; (3) allow each other “to review in advance

and incorporate their reasonable comments in any communication” to the

government; and (4) “to the extent practicable,” consult with each other before “any

material meeting, written communications or teleconference” regarding regulatory

approval or any proceeding, and give each other “the opportunity to attend and

participate in such meetings and teleconferences.” These obligations were included

in Section 6.3(b) of the final Merger Agreement.

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 78. Seventh, the Parties agreed that if the Merger failed to close, Kroger

would pay Albertsons a termination fee. This obligation appeared in the August 12,

2022 Merger Agreement draft, with the amount of the termination fee provisionally

left blank. The Parties later agreed to a $600 million termination fee.

79. Eighth, the Parties agreed that, even if the Merger Agreement was

terminated and the $600 million termination fee was paid, the termination would not

release any Party from liability for any “Willful Breach” of the Merger Agreement—

i.e., a “material breach … that is the consequence of an act or omission by the

breaching [P]arty with the actual knowledge that the taking of such act (or, in the

case of an omission, failure to take such act) would cause or constitute such material

breach, regardless of whether breaching was the object of the act or failure to act.”

In the case of a Willful Breach, the aggrieved Party would be “entitled to all rights

and remedies available at law or in equity,” such as “benefit of the bargain” damages

suffered by Albertsons’ stockholders from the loss of the premium that they would

have received had the Merger closed. Thus, if Kroger willfully breached any of its

obligations under Merger Agreement—including its obligations regarding antitrust

matters under Section 6.3—Albertsons could seek damages for the breach, which

would not be limited by the $600 million termination fee. The final Merger

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 Agreement memorialized this point in Sections 8.3 and 9.5 and in the definition of

“Willful Breach” in Section 1.1.

80. Thus, as of August 12, 2022, when Albertsons shared the initial draft

Merger Agreement with Kroger, the basic framework protecting Albertsons from

the risk of Kroger failing to obtain antitrust regulatory approval already was in place.

The only open issues for further negotiation on this topic included (1) the cap on

how many stores Kroger could be required to divest, (2) the amount of the

termination fee Albertsons would receive if the deal failed, and (3) the extent of

control Kroger would exercise over the process of seeking antitrust regulatory

approval, notwithstanding Albertsons’ agreed-upon right to participate in that

process.

81. On August 19, 2022, Kroger sent Albertsons proposed revisions to the

initial draft Merger Agreement. Some of Kroger’s edits focused on the issue of

control over the regulatory process. While accepting Albertsons’ proposed language

requiring cooperation, Kroger rejected Albertsons’ proposal that the Parties resolve

any disagreements about any regulatory “communication, strategy or process” by

“work[ing] together in good faith to resolve the disagreement and endeavor[ing] to

implement such communication, strategy or process in a mutually acceptable

manner.” Kroger instead proposed language stating that Kroger “shall have the

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 principal responsibility for devising and implementing” the antitrust strategy “and

shall lead and direct all submissions” in the antitrust regulatory process and any

litigation.

82. That proposed transfer of control to Kroger was not acceptable to

Albertsons—unless Kroger committed to a divestiture package sufficiently large and

robust to give Albertsons confidence that the Merger would receive antitrust

approval. On August 26, 2022, Albertsons sent Kroger a draft Merger Agreement

that reversed Kroger’s edits on the issue of control but added, in a footnote: “Control

of strategy to be discussed after [Albertsons’] review of [Kroger’s] proposed

divestment package.”

83. Accordingly, for the next several weeks, the Parties temporarily tabled

the question of control over post-signing antitrust strategy, instead focusing their

negotiations largely on the cap on the number of stores that Kroger would be

contractually required to divest and the size of the termination fee Kroger would be

contractually obligated to pay if the deal failed.

84. Kroger’s incentive was to bargain for the lowest possible cap on the

number of stores it would potentially need to divest because, other things being

equal, divesting more stores would mean Kroger was giving up more value. But

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 Albertsons was unwilling to enter into a Merger Agreement that did not require a

divestiture level that Albertsons could be confident would secure antitrust approval.

85. On September 2, 2022, Kroger proposed a 600-store cap on Kroger’s

obligation to divest stores to obtain regulatory approval.

86. Albertsons was not satisfied. The next day, the Parties’ respective

antitrust attorneys discussed Kroger’s proposal and the importance of Kroger

proposing a viable divestiture package to antitrust regulators.

87. On September 5, 2022, Albertsons communicated a counterproposal in

which the cap for Kroger’s divestiture obligation would be increased to 650 stores,

and the termination fee payable by Kroger to Albertsons would be $800 million.

88. Kroger countered the next day, proposing a 600-store divestiture cap

and a $600 million termination fee. Albertsons rejected that proposal. On

September 22, 2022, it communicated to Kroger that it would agree to a $600 million

termination fee, but only on the condition that the divestiture cap was raised to 725

stores.

89. Kroger initially balked at raising the divestiture cap above 600 stores.

But after discussions between the Parties’ financial advisors and attorneys on

September 27 and 28, 2022, Kroger made a September 29, 2022, counteroffer that

included a 650-store divestiture cap and a $600 million termination fee.

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 90. The same day, Albertsons communicated to Kroger that it was prepared

to accept Kroger’s economic terms, subject to a few final demands including

increasing the divestiture cap to 725 stores.

91. Finally, in discussions between September 30 and October 1, 2022,

Albertsons and Kroger reached an agreement in principle on the termination fee and

divestiture cap. Kroger would agree to set the cap for required divestiture at 650

stores, despite having insisted repeatedly that it should be no higher than 600 stores.

While lower than the 725-store threshold Albertsons had proposed, this 650-store

threshold was still conservative and thus protective of Albertsons; the Parties

understood that if Kroger met its stringent obligations to make “best efforts” and

take “any and all actions” to secure antitrust approval, it would be readily achievable

to construct a divestiture package that would fully address any antitrust concerns

without needing to divest more than 650 stores. In return for Kroger’s agreement to

the 650-store threshold, Albertsons would accept Kroger’s proposal for a $600

million termination fee. While the termination fee was below market expectations

for a merger of similar size and complexity, Albertsons was willing to accept the

lower termination fee because of the strong protections designed to minimize the

risk of transaction failure as a result of Kroger accepting the 650-store cap, and

because Albertsons had preserved the right to seek damages beyond the termination

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 fee for any Willful Breach by Kroger. Ultimately, the final Merger Agreement

reflected the Parties’ agreement on a 650-store divestiture cap and provided for the

$600 million termination fee.

92. That left the issue of control over antitrust strategy to be negotiated. In

a markup of the Merger Agreement on October 7, 2022, Kroger proposed a

compromise: Kroger would agree to Albertsons’ proposed language requiring “good

faith” efforts to resolve disagreements, in exchange for Albertsons agreeing that,

“following such good faith efforts” to resolve disagreements, Kroger “shall have the

principal responsibility for devising and implementing the strategy for obtaining any

necessary antitrust consents or approvals.” Albertsons agreed. Whereas Albertsons

could not unliterally approach the FTC to provide updates on the Merger or proposed

divestiture package, it could rely on the strong contractual protections that mitigated

the risk of Kroger abusing its asymmetric control over the antitrust process. Section

6.3(b) of the final Merger Agreement reflected this compromise.

93. Before Albertsons made its final decision to accept Kroger’s terms,

Kroger CEO Rodney McMullen met face-to-face with Stephen A. Feinberg, the

CEO of Albertsons’ then-largest stockholder, Cerberus Capital Management.

McMullen explicitly committed to Feinberg that Kroger would divest 650 stores to

get the Merger done, and shook hands with Feinberg on that point. This personal

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 commitment from the highest level of Kroger’s management gave Albertsons the

added assurance to feel comfortable selling the business to Kroger.

IV. Albertsons and Kroger Agree to Merge

94. On October 13, 2022, Albertsons and Kroger entered into the Merger

Agreement. A true and correct copy of the Merger Agreement is annexed to this

Complaint as Exhibit 1.

95. In the Merger Agreement, Kroger and Albertsons agreed to merge

Kroger’s subsidiary, Kettle Merger Sub Inc., into Albertsons, in a transaction that

valued Albertsons at approximately $24.6 billion and would provide $34.10 per

share in consideration to Albertsons’ stockholders, representing a 32.8% premium

over Albertsons’ closing stock price of $25.67 on October 12, 2022, the day before

news of the Merger became public. The premium alone was valued at approximately

$6 billion.

96. The executed Merger Agreement imposed on Kroger all the stringent

obligations regarding its pursuit of regulatory approval for which Albertsons had

bargained, and that Albertsons had insisted on maintaining throughout negotiations.

See supra Section III.

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 97. Section 8.1(e) of the Merger Agreement set the “Outside Date”—the

date on which either Party could terminate the Merger Agreement if the deal had not

closed—as January 13, 2024.

98. That same subsection provides that if regulatory approval was still

pending, either Party could unilaterally extend the Outside Date in increments of 30

days, for up to 270 days total, i.e., until October 9, 2024. If either Albertsons or

Kroger was in breach of the Merger Agreement, however, that Party was not

permitted to extend the Outside Date. Albertsons later exercised its rights under

Section 8.1(e) of the Merger Agreement to extend the Outside Date nine times in

one-month increments from January 13, 2024 through October 9, 2024 in an effort

to salvage the Merger despite Kroger’s breaches of its obligations.

99. Under Section 8.4(c), if the Merger Agreement was terminated by

either Party (i) following the passage of the Outside Date if the Merger had not

received regulatory approval or an antitrust injunction remained pending or (ii)

following the issuance of a final non-appealable order enjoining the Merger on

antitrust grounds, then Kroger would be required to pay Albertsons the $600 million

termination fee. Kroger also would be obligated to pay the $600 million termination

fee if Albertsons terminated because the transaction was otherwise ready to close

but Kroger refused to close.

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 100. Further, in the event of a “Willful Breach” of the Merger Agreement by

Kroger, Section 8.3 allows Albertsons to recover its damages over and above the

$600 million reverse termination fee, providing that Albertsons “shall be entitled to

all rights and remedies available at law or in equity.”

101. Finally, Section 9.5 of the Merger Agreement expressly contemplates

that the damages Albertsons may seek for a Willful Breach include “benefit of the

bargain” damages, which Albertsons may “pursue[] on behalf of the holders of

[Albertsons] Common Stock.” These “benefit of the bargain” damages include the

premium that Albertsons’ stockholders would have received if the Merger had

closed.

V. Kroger Immediately Receives Negative Market Feedback After the

Merger Is Announced

102. When Albertsons and Kroger agreed to merge, both companies

believed the transaction was in their economic interest. But the ink on the Merger

Agreement was barely dry before Kroger began to develop buyer’s remorse.

Multiple factors—including negative market feedback on the deal and its impact on

Kroger’s debt burden; and ominous economic signals for the grocery sector—

combined to change Kroger’s financial assumptions, creating a disincentive for

Kroger to go as far in seeking antitrust approval (including the divestiture process)

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 as might be necessary to close the deal on the terms it had agreed to, despite its

contractual obligations.

103. First, Kroger received near-instant feedback from the market indicating

that investors and analysts viewed its acquisition of Albertsons negatively.

104. News of the likely merger became public on October 13, 2022,

preceding the formal announcement the next day. Following the initial news reports

and continuing after the formal announcement, there was a significant sell-off of

Kroger’s stock, causing a 7.3% decrease in share price that day—the stock’s largest

single-day decline in the second half of 2022.

105. After the public announcement on October 14, 2022, well-known

investment ratings companies, including S&P, Moody’s, and Morningstar, all

published reports on Kroger. These analyses recognized that Albertsons was an

attractive acquisition target for Kroger, and none suggested that the deal overvalued

Albertsons. S&P, for example, noted that both companies had “performed well

recently” and that “[t]he combined enterprise will have a more balanced footprint

across the U.S. with the benefit of [Albertsons’] solid western U.S. presence and

should present the organization with significant synergy opportunities.”

Nevertheless, S&P, Moody’s, and Morningstar each concluded that the Merger’s

overall effect on their outlook for Kroger was “negative.” In addition to recognizing

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 that obtaining antitrust clearance would likely require a large divestiture package,

analysts were concerned about potential increases in debt levels at the post-merger

company, as well as potential integration risks in an uncertain time for grocery

retailers.

106. Kroger’s post-merger debt load was an especially significant concern

to third-party analysts. Morningstar, for example, emphasized that Kroger’s

additional leverage as a result of the Albertsons acquisition could result in a debt-to-

adjusted-EBITDA ratio of well over 3.00x, which could lead to challenges in

achieving future revenue growth. Analysts at S&P and Moody’s were similarly

concerned that high leverage might hinder future growth for Kroger and ultimately

affect its ability to maintain a commercial-grade credit rating.

107. Analysts also expressed concern that a general cooldown in grocery

sales, following record high performance during the COVID-19 pandemic, might

create integration risks. S&P, for example, explained that in an industry that

“continue[d] to evolve rapidly to meet customer expectations,” there might be

unforeseen execution risks in the management of the combined entity. Moody’s

warned that these risks could even lead to potential operational shortfalls,

endangering the short-term financial well-being of the new company.

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 108. These negative reactions from influential ratings agencies—and the

implicit risk of a near-term credit downgrade, which could make borrowing for

Kroger more expensive going forward—soured investors’ opinion of Kroger. That,

in turn, created a powerful incentive for Kroger to revise its approach to the deal.

109. Second, concerns emerged about the risk of deflation in the U.S.

economy following years of inflation, which could have undermined Kroger’s

assumptions related to the value it expected to capture from the deal. During the

Merger negotiations, post-pandemic inflation was high—but as pandemic-era

stimulus programs began to wind down, and global monetary policy tightened, some

economists predicted lower inflation or even deflation, pushing down the prices of

groceries and other consumer goods. Analysts warned that, based on historical data,

a period of deflation would depress grocery companies’ earnings.

110. Third, over the two years following the Merger Agreement, both

Albertsons and Kroger experienced financial results that fell short of expectations in

some respects. Albertsons, for example, had forecasted around the time of the

Merger Agreement that its adjusted EBITDA for fiscal year 2023 would be

approximately $4.7 billion, but it ultimately reported adjusted EBITDA of

approximately $4.3 billion for that fiscal year. The headwinds reflected in these

results were also felt by other grocery retailers, as overall consumer spending at

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 grocery stores trended downward. These financial realities made the Merger less

accretive to Kroger, other things being equal.

111. These post-signing market developments were no excuse for Kroger to

walk back from its contractual obligations in the Merger Agreement. After a deal

announcement, it is not unusual for the buyer to receive negative market feedback

and to experience economic headwinds that partially erode the deal’s value. Kroger

bore this risk under the Merger Agreement, and it was Kroger’s responsibility to

consider this possibility before it irrevocably committed to acquire Albertsons and

to use “best efforts” and take “any and all actions” to secure antitrust approval.

Despite its contractual obligations, however, economic factors after the signing of

the Merger Agreement gave Kroger an incentive to breach the contract by

approaching the regulatory process in a way that prioritized preserving value for

Kroger at the expense of antitrust approval risk.

VI. Kroger Faces Political and Labor Pushback to the Merger, Which It
Refuses to Take Reasonable Measures to Mitigate

112. From the Merger’s announcement, Kroger also faced significant

political and labor group pushback. Albertsons proposed a proactive advocacy and

public relations strategy to Kroger, but Kroger ignored its advice. These political

and labor pressures increased the scrutiny on antitrust approval of the Merger and

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 ultimately added fodder to the FTC’s concern that the Merger could be problematic

for labor market competition.

113. Organized labor groups representing grocery store employees voiced

opposition to the Merger. For example, on November 29, 2022, the Local United

Food and Commercial Workers Unions, which represented over 100,000 Kroger and

Albertsons employees in twelve states, held a press conference opposing the Merger.

Only one labor group representing employees from either company subsequently

supported the Merger, and it later retracted its support. Opposition from labor

groups further inflamed the political pressure that Kroger faced.

114. Albertsons proposed ways for Kroger to allay political and labor

concerns. In or around June of 2023, Albertsons encouraged Kroger to develop a

grassroots communications and advocacy strategy. Albertsons urged Kroger to

proactively reach out to and meet with members of Congress to discuss the Merger

and its procompetitive benefits. Kroger did not do so.

115. Albertsons also advised Kroger to seek negotiations with pertinent

unions. The Parties knew that FTC Chair Lina Khan had indicated that labor issues

were among the FTC’s considerations when evaluating a potential merger. Thus,

proactively engaging with labor interests would help get the deal done. Albertsons

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 believed that at least one national union would favor the deal if the Parties provided

meaningful incentives. Kroger CEO Rodney McMullen refused to engage.

116. Union opposition was far from inevitable. In fact, unions had powerful

incentives to support the Merger. Unionized grocers’ jobs fell from about 50% to

14% among the top 15 grocers in the last 20 years. Against that backdrop, the

Merger would preserve union jobs by helping Albertsons and Kroger keep stores in

business. Unions would thus be natural allies of the Merger, but only if Kroger

successfully addressed their concerns.

117. Those concerns were readily solvable. One of the United Food and

Commercial Workers International Union’s main complaints about the Merger was

“lack of transparency.” Another was that Kroger was not pro-union. Had Kroger

engaged with the unions, demonstrated transparency, and explained the Merger’s

benefits to labor, the Merger would have likely found some union support. That

support would have helped to blunt public opposition to the Merger and promote a

favorable regulatory review.

118. Kroger let these manageable headwinds turn into large roadblocks

through its refusal to heed Albertsons’ advice and failure to take steps from early

2023 onwards to educate key constituencies about the benefits of the Merger.

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 119. None of these developments changed Kroger’s obligations under the

Merger Agreement. And despite political and labor concerns about the Merger, the

path to FTC approval was still attainable. Large, complex deals often face

considerable public scrutiny and political controversy, and many such transactions

clear agency review without litigation. Kroger, however, flouted its contractual

obligations, insisting on the Merger going forward on its own terms or not at all.

VII. The Merger Has a Viable Path to Antitrust Approval, Provided Kroger
Complies with its Contractual Obligations
120. As discussed above, the Merger Agreement specifies that Kroger was

responsible for shepherding the Merger through the regulatory-approval process.

This task was entirely achievable, so long as Kroger performed as required under the

Merger Agreement.

121. In evaluating proposed mergers, antitrust regulators and courts consider

not only whether the merger could cause competitive concerns, but also whether it

would have procompetitive benefits. In this case, the Merger would have provided

significant procompetitive benefits to the customers that Albertsons and Kroger

serve.

122. The path to obtaining antitrust clearance of mergers between large

supermarket companies is well-trodden. For example, in 2016, the FTC settled a

$28 billion merger between Koninklijke Ahold (“Ahold”) and Delhaize Group,
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 which together owned grocery chains such as Giant, Martin’s, Stop & Shop, Food

Lion and Hannaford, after the two companies agreed to divest 81 stores. As the

Ahold-Delhaize merger illustrated, two large companies can assuage FTC concerns

if they take appropriate steps to address those concerns, including by presenting

defensible and timely divestiture proposals.

123. After a merger is first presented to the FTC pursuant to the HSR Act,

the FTC has a certain amount of time to issue additional requests for documents and

information—referred to as second requests—seeking additional information about

the transaction. Statutory waiting periods differ depending on the type of transaction

at issue. The operative waiting period for the Merger was 30 days. If the FTC does

not issue a second request during the waiting period, the transaction can close. If,

however, the FTC issues second requests within the waiting period, the Parties must

work with the FTC to address its additional inquiries. When the Parties have

substantially complied with the FTC’s requests, absent a timing agreement with the

Parties stating otherwise, the FTC then has 30 days to either (1) sue to enjoin the

transaction or (2) reach a negotiated agreement to allow the transaction to close

without the need for litigation. Each of these steps must occur before the Parties’

agreed-upon outside date, i.e., the final deadline for closing the deal, after which the

Parties can walk away.

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 124. Under Section 8.1(e) of the Merger Agreement, either Albertsons or

Kroger could walk away from the transaction “if the Closing d[id] not occur on or

before” January 13, 2024—the Outside Date. That date could thereafter be extended

by one of the Parties to October 9, 2024, with certain limitations.

125. Given this timeline, a party intent on seeing the Merger close before the

Outside Date—as was Kroger’s obligation—would have and should have taken a

proactive approach on appealing to and working with the FTC from the moment the

Merger was first presented to the agency. That would mean presenting to the FTC,

as an initial offer, a sizeable divestiture package that was supported by detailed

economic analysis and that contained stores selected by objective, neutral criteria.

Such a package would be structured to address local concentration concerns and

thereafter, be updated to timely respond to the FTC’s feedback in subsequent

divestiture package proposals.

VIII. Kroger Proposes a Woefully Inadequate Initial Divestiture Package

126. Given the timing pressures the Merger faced and the importance of

establishing credibility before the FTC, it was imperative that Kroger propose

workable solutions to the FTC early on in its negotiations with the agency. Kroger

instead proposed a facially deficient divestiture package of only 238 stores. That

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 was inadequate under Kroger’s own experts’ economic analyses, and well below the

650-store threshold in the Merger Agreement.

127. The inadequacy of Kroger’s proposal was especially surprising, since

as described in Section II, Kroger was being advised by sophisticated legal counsel

with extensive experience in antitrust matters, including government leadership

experience. Those lawyers understood what it would take for the Merger to close: a

meaningful divestiture package and serious and efficient cooperation with the

regulatory agency.

128. In particular, a well-reasoned divestiture package would have

considered and been drafted in light of the FTC’s well-known methodology for

assessing competitive effects in merger analysis. As part of any merger

investigation, the FTC examines the merger’s impact on market concentration in

relevant product and geographic markets, which can and may include multiple sub-

markets in localized areas of competition. Especially when evaluating merging

grocery sellers, the FTC has a long history of evaluating hyper-local areas of

competition, for example, competition within a 3 or 5-mile radius. Knowing the

likely approach the FTC would take in analyzing the competitive effects of the

merger, Kroger should have created a highly detailed initial divestiture proposal

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 focused on areas of local competition that could be affected by the Merger. It did

not.

129. Instead, Kroger’s initial proposed package ignored settled economic

principles and methods and cherry-picked its low-performing, unattractive stores, in

a hodgepodge of localities. Other localities with areas of overlap between Kroger

and Albertsons but with high-performing Kroger stores were not prioritized for

divestitures. This clearly was an indefensible approach designed only to benefit

Kroger’s balance sheet at the expense of time and credibility before the FTC, and

ultimately, to the detriment of consumers and Albertsons.

A. Kroger Presents an Initial Divestiture Package of Just 238 Stores

130. On October 14, 2022, the day the Merger was made public, the Parties

had an initial call with the FTC. Kroger explained the rationale for the deal and that

the Parties expected considerable synergies. Kroger expressed its willingness to

present a divestiture package that would get the deal done.

131. On December 1, 2022, Kroger and Albertsons had their first formal

meeting with FTC staff. At that meeting, Kroger presented its initial divestiture

proposal of 238 stores. Kroger had developed this proposal unilaterally, rejecting

Albertsons’ advice and warnings that a low initial divestiture number would be

problematic for the FTC; ignoring Albertsons’ recommendations about which stores

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 should and should not be included on the list; and ultimately refusing to share with

the FTC how it had arrived at the 238 stores. The package contained approximately

a third of the 650 stores contemplated by the Merger Agreement and approximately

half of the stores that Kroger had told Albertsons that its economic experts had

modeled that it would likely need to divest.

132. Following receipt of Kroger’s initial proposal, the FTC issued second

requests (the “Second Request”) on December 5, 2022, to Kroger and Albertsons

requiring them to assemble massive document productions in support of the Merger.

The FTC’s Second Request to Albertsons contained 91 separate requests for

narrative responses and/or documents, many of which had several sub-parts,

touching all aspects of Albertsons’ businesses. The Parties ultimately produced

many million documents to the FTC over a period of several months, at a

considerable expense.

133. Nonetheless, despite the seriousness of having received a Second

Request, indicating the Merger stood a good chance of ultimately being litigated,

between December 2022 and March 2023, Kroger dragged its feet and failed to

address adequately the FTC’s concerns.

134. In the initial December 1, 2022 meeting with regulators, for example,

the FTC had raised questions regarding local concentrations of stores in specified

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 geographies. Kroger took months to respond. This laggard approach colored its

later interactions with regulators as well.

B. Kroger Doubles Down on Its Inadequate Divestiture Package of

238 Stores

135. On March 17, 2023, after months of little to no contact about Kroger’s

divestiture proposal, the Parties met with the FTC again. Kroger presented a slide

deck about the merger and about its divestiture proposal, which remained the same

238-store proposal from December 1, 2022.

136. Kroger’s presentation on the divestiture proposal provided more detail

about how its 238 stores were selected; those details only revealed that Kroger had

failed to use uniform, neutral criteria for selecting stores. Kroger did not, as the FTC

would have expected, evaluate stores using a uniform metric like radius around

existing Kroger and Albertsons stores. Nor did it evaluate market shares with a

recognized 30% threshold or evaluate whether there were four or fewer remaining

competitors in the relevant geographic area that it defined. Whereas Kroger stated

it was evaluating a “localized, store-by-store competition analysis,” this appeared to

be a non-rigorous, cherry-picking approach. As later analysis confirmed, out of the

238 stores that Kroger proposed to divest, those belonging to Kroger were largely

unprofitable stores, and divesting them would protect Kroger’s bottom line.

Kroger’s failure to use an objective, neutral approach to select stores was a

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 purposeful one aligned with Kroger’s self-interest, rather than one aimed at

alleviating local concentration concerns.

137. Kroger’s presentation to the FTC also failed to evaluate local

competition in the “traditional supermarket and supercenter” market that the FTC

had used in prior successful mergers. Kroger should have known, based on the

FTC’s approach to prior grocery mergers, that the FTC was likely to rely on this

kind of “traditional supermarket and supercenter” definition and Kroger thus should

have tailored its presentation and analyses accordingly to address that approach. It

did not.

138. Unsurprisingly, Kroger’s presentation was not well received by the

FTC. The FTC made clear that the number of stores Kroger was proposing to divest

was inadequate, and it was not clear how stores were being selected or why certain

local geographies with concentration issues were not addressed.

IX. Kroger Mismanages the Process of Identifying a Divestiture Buyer,

Culminating in the Selection of Wholesale-Focused C&S

139. Kroger also failed to live up to its obligations under the Merger

Agreement in identifying a buyer for the divested stores.

140. The selection of an appropriate divestiture buyer, or group of buyers, is

a critical part of any antitrust regulatory process that involves a potential divestiture.

In assessing whether a divestiture plan would sufficiently address any competitive

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 concerns otherwise posed by a merger, the FTC and other antitrust regulators assess

not only the scope of assets to be divested, but whether the buyer has the skills,

resources, and motivation to operate those assets in a way that preserves competition.

141. Kroger’s search for a divestiture buyer was disorganized, protracted,

and contributed to the ultimate failure of the Merger. Kroger passed up highly

qualified divestiture buyers—including a buyer that its own executives characterized

in their internal communications revealed at trial as a “no brainer”—in favor of a

divestiture buyer whose primary business was wholesale distribution with a limited

record of running retail stores. Kroger’s selection of a divestiture buyer introduced

new obstacles for the Parties throughout trial and ultimately contributed significantly

to the Oregon and Washington Courts’ decisions to enjoin the merger.

142. As an initial matter, Kroger dragged its feet. Kroger failed to sign a

single nondisclosure agreement (“NDA”) with a prospective buyer until February

2023, months after it signed the Merger Agreement.

143. Once it finally began its search for a buyer, Kroger received substantial

interest from the market. During the course of the solicitation process,

approximately 90 potential buyers were contacted about the transaction, and about

60 indicated their interest in exploring the divestiture transaction by signing NDAs.

Unbeknownst to Albertsons at the time, some of these prospective buyers were

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 experienced, large-scale grocery retailers including who should have been

front runners and would have been strong competitors to Kroger. Instead, Kroger

turned them away.

144. for example,

when it was

expressed specific interest in an

area that was flagged by regulators as having specific local concentration concerns.

was an ideal candidate to purchase divested stores: it had a strong track record

of operating retail supermarkets , which would quell any doubts

about its ability to operate the divested stores, and had

, later stated

that would have been a better buyer than C&S because it “already ha[d] a solid

backbone” and was “very profitable at retail.” Nonetheless, Kroger rejected

never informing Albertsons that they were even in the mix of potential buyers.

145. In evaluating prospective buyers, Kroger also focused on criteria that

were not aligned with securing regulatory approval for the Merger. In October 2024,

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 Kroger admitted to the FTC that it had evaluated initial divestiture offers based on

“value, transaction certainty, and buyer flexibility to acquire additional stores.” This

was at the expense of prioritizing criteria that would be critical to the FTC, such as

a company’s track record of running retail grocery stores, the strength of a

company’s management team, the reliability of a company’s existing financing

arrangement, and the depth and complexity of transitional services and non-store

assets that would be required to support a buyer. While Kroger used some of these

criteria to evaluate final bids, Kroger should have prioritized them throughout the

buyer selection process.

146. Kroger also artificially narrowed the field of potential buyers by

insisting on a single buyer for all divested assets. In numerous other large merger

transactions, the FTC had accepted proposals for multiple buyers to purchase

divested assets. Assembling multiple buyers who could purchase stores in different

geographical regions would avoid triggering new antitrust concerns from the

divestiture transaction, as it would spread store ownership among more, not fewer,

owners than prior to the Merger. For example, assembling multiple buyers could

allow Kroger to sell stores and related assets in “clean sweeps,” that is, larger

bundles in specific geographies. Kroger refused even to consider that possibility.

Its insistence on a single buyer substantially limited the number of potential buyers

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 for to-be-divested stores, as few prospective bidders had the size, management

expertise, existing supply chain contracts, distribution infrastructure, and access to

capital to purchase hundreds of store locations in a single transaction.

147. The divestiture package Kroger offered to buyers further narrowed the

number of potentially interested buyers—even buyers Kroger did not improperly

exclude. Kroger offered potential buyers an unattractive 413-store package of

underperforming stores and paltry non-store assets. As Albertsons already had

warned Kroger, that package failed to adequately address regulatory concerns about

local store concentration or set up a divestiture buyer to meaningfully compete. Yet,

as in its interactions with the FTC and Albertsons, Kroger did not react to potential

buyers’ concerns; rather, Kroger only offered take-it-or-leave-it bundles. The results

were predictable: of the approximately 60 companies that signed NDAs with Kroger

and indicated initial interest, only 3 ultimately submitted formal bids.

148. Kroger received formal bids from potential divestiture buyers by

August 3, 2023, approximately a month before the date by which Kroger had told

Albertsons that it would have an executed asset purchase agreement in place with a

divestiture buyer. This time crunch created new concerns, as it prevented Kroger

from adequately considering those bids, going back to the market for additional bids,

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 negotiating better offers from existing bidders, or considering a proposal to work

with multiple bidders in a joint process.

149. Throughout June and July 2023, Kroger kept Albertsons in the dark

regarding the process of selecting a divestiture buyer. Kroger did not inform

Albertsons of the details of its interactions with potential buyers, nor did it tell

Albertsons that strong buyers were being turned away. Kroger also did not include

Albertsons in its process of assessing the bids that it received, even though a large

number of stores that would be divested were current Albertsons stores.

150. Without any input from Albertsons, Kroger ultimately chose C&S as

the sole divestiture buyer. Nearly a year after entering into the Merger Agreement,

on September 8, 2023, Kroger and C&S entered into an APA.

151. Kroger’s choice of C&S raised several challenges that the FTC seized

upon. First, while C&S is a leading, large-scale competitor in grocery wholesale,

C&S currently operates only 23 retail grocery stores, mostly in upstate New York,

Vermont, and Wisconsin, and this lack of retail experience would raise questions

about its ability to operate successfully an up-to-650-store supermarket chain,

including fuel and pharmacy operations, across multiple states. C&S also lacked

any significant retail experience in states like Washington or Colorado, where

Kroger anticipated needing to divest a meaningful number of stores.

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 152. Second, C&S’s existing banners for stores, limited to Piggly Wiggly

and Grand Union banners, and private label brands, limited to Best Yet, are unknown

to customers in Arizona, Colorado, Oregon, Washington, and California, where

Kroger needed to divest stores. C&S would need to invest in significant re-

bannering of stores and Kroger would need to transfer lucrative private labels like

“O Organic” and “Signature,” associated with significant execution risk. In many

grocery stores, private label sales make up 25% of sale volume; any issues in

transferring banners or brands could significantly undermine the future success of

divested stores.

153. Third, given the limited footprint of C&S’s existing retail stores,

Kroger would need to divest a broad array of non-store assets. C&S required

thousands of store associates, managers, back-office personnel, and a comprehensive

IT solution that it did not have in order to run the divested stores. And while C&S

operated a large distribution network that supplied grocery stores around the country,

that network had gaps in Arizona, Colorado, and Southern California, areas where

Kroger was divesting a substantial number of stores. Kroger therefore would need

to divest distribution centers in those regions as well.

154. Fourth, given its lack of a significant grocery retail business, C&S

would require continued transition support from Kroger over a long period of time

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 to operate the divested stores, raising concerns about ongoing entanglements

between competitors in these very markets.

155. Fifth, after Kroger selected C&S, Albertsons learned that C&S also has

a history of acquiring stores and then selling them when they become unprofitable.

As the FTC later highlighted in its preliminary injunction trial to stop the Merger,

C&S acquired over 370 retail grocery stores between 2001 and 2012 but sold or

closed all but three of those stores by 2012. Indeed, it was revealed at trial that C&S

stated as recently as 2021 that any retail grocery stores it operates were intended to

support its wholesale business, and the company stated in a 2021 quarterly report

that “[w]e do not intend to grow our grocery retailing operations or to operate the

retail grocery stores in the long term. We expect to divest our retail grocery stores

as opportunities arise.” Similarly, in 2023, C&S stated that “[f]rom time to time, we

acquire retail store locations in connection with strategic transactions to maintain or

expand our grocery wholesaling and distribution business.”

156. Sixth, C&S would require months of fundraising negotiations with its

bankers to obtain the financing necessary for it to purchase the required number of

to-be-divested stores, which would delay its ability to enter any definitive agreement

to acquire those stores. Given these attributes of C&S, Kroger and its sophisticated

antitrust counsel surely knew that the FTC would closely scrutinize any plan to

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 preserve competition after the Merger by divesting stores to C&S. While the FTC

had approved C&S as a divestiture buyer in a 2022 merger between grocers Price

Chopper and Tops, that divestiture was for just twelve stores. C&S, however, has

faced challenges operating these stores. It has had to close one and the remaining

stores have lost significant sales and are losing money.

157. Kroger’s choice of C&S ultimately would fuel plaintiffs’ efforts to

challenge the Merger. The FTC, Colorado Attorney General, and Washington

Attorney General focused much of their cases on C&S’s perceived shortcomings as

a divestiture buyer. The FTC, for example, repeatedly emphasized C&S’s thin and

uneven track record in grocery retail. The agency also noted what it perceived as

tension between Kroger’s arguments that (1) it needed to merge with Albertsons to

obtain the scale to compete with Walmart, Costco, Amazon, and Target, and (2)

C&S would be a viable competitor, even though its existing retail supermarket

operations were nearly nonexistent, and it would acquire only a few hundred stores

in the divestiture. The Colorado and Washington Attorneys General echoed these

points in their cases challenging the deal. Regardless of whether those critiques of

C&S are accurate, they would not have been made, or would not have persuaded the

Court, had Kroger selected a buyer with a clear track record of retail success.

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 158. Kroger’s mismanagement of the search for a divestiture buyer thus left

the Merger vulnerable to attacks from regulators and was emblematic of Kroger’s

broader failure to use “best efforts” and take “any and all actions” to secure timely

antitrust approval. While C&S may well be capable of succeeding as a divestiture

operator, that is beside the point. The point is that Kroger had an obligation to

remove any and all regulatory concerns, and it selected C&S knowing that the

selection was risky and would generate objections from the regulators.

X. Kroger Proposes an Inadequate Package of Assets to Divest to C&S

159. Once Kroger selected C&S as a divestiture buyer, it was required to

take any and all steps necessary to ensure that C&S had the tools regulators believed

it needed to succeed so that the regulators would approve the Merger.

160. Kroger failed to do so by refusing to assemble an adequate package of

store and non-store assets to be divested. From the outset of its interactions with

potential buyers, Kroger prioritized negotiating a divestiture package that was

consistent with its economic interests and the financial models it had built before

signing the Merger Agreement—not its contractual obligations in seeking regulatory

approval.

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 A. Kroger Rejects Albertsons’ Input in Crafting its Proposed
Divestiture Package
161. By early June 2023, Kroger had developed a plan to divest 413 stores

to the buyer that emerged from its then-ongoing divestiture process. Kroger told this

plan to Albertsons, but did not yet reveal it to the FTC until it had a buyer ready in

September 2023.

162. In June 2023, Albertsons met with Kroger and urged Kroger to add

additional stores to its divestiture package. Albertsons emphasized to Kroger that

the divestiture process with the FTC was not a typical back-and-forth negotiation,

and that Kroger needed to lead with an offer for a large and rigorously supported

divestiture package. Albertsons also expressed concern about Kroger’s lack of

communication with the FTC, and asked Kroger to schedule regular weekly

meetings with the FTC to discuss substantive issues concerning the divestiture

package. Albertsons also expressed concern at the nature of Kroger’s negotiations

with the FTC, which were drawn out. Kroger had no excuse for taking 10 months

to increase its 238-store package to 413 stores, nor for its negotiations with

divestiture buyers still being unresolved throughout the summer of 2023.

163. In subsequent emails, meetings, and calls, Albertsons expressed

concern about Kroger’s proposed 413-store divestiture package, which was deficient

for multiple reasons—in particular, because it did not adequately address the FTC’s
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 concerns from the March 17, 2023 meeting about the number of stores that were

being divested and how stores were being selected. It also did not include adequate

non-store assets for a prospective divestiture buyer.

164. On July 19, 2023, Albertsons asked Kroger for a meeting to discuss its

latest divestiture package. On July 24, 2023, Albertsons emailed Kroger a list of

approximately 100 additional stores for Kroger to consider adding to the package,

along with supporting analysis from Albertsons’ economists.

165. The next day, on July 25, 2023, the Parties met to discuss Kroger’s

latest divestiture package. Albertsons shared with Kroger detailed modeling results

which showed that Kroger’s 413-store package was unlikely to resolve the FTC’s

concerns about the Merger’s potential anticompetitive effects. Albertsons

communicated that the stores in Kroger’s proposed package clearly were not

selected based on the guidelines and feedback from the FTC, since numerous

geographies were not addressed and stores with obvious concentration issues were

not being divested. Albertsons expressed concern that the FTC would not view the

413-store offer as a good faith effort but, instead, as further lowballing. Albertsons

noted such an offer could cause the FTC to sue to block the transaction rather than

engaging in further work on a divestiture package. From its own economic analysis,

Albertsons pointed Kroger to the specific stores it believed would go the furthest in

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 addressing regulators’ local concentration concerns, which were selected based on

the FTC’s guidelines and feedback.

166. On July 27, 2023, following up from the Parties’ meeting two days

before, Albertsons emailed Kroger a revised list of stores for Kroger to consider

adding to the divestiture package. The list included about 160-170 stores that

Albertsons’ economists determined were at incremental risk of enforcement after the

413-store divestiture, bringing the total divestiture size to approximately 580 stores.

Again, Kroger ignored Albertsons’ feedback.

167. Kroger acknowledged that additional stores needed to be added to its

divestiture package. Nonetheless, across June, July, August, and September, Kroger

did not add a single store to its divestiture package.

B. The Assets in the APA Are a Cherry-Picked Selection of 413 Stores

and Paltry Non-Store Assets
168. In the APA, Kroger agreed to sell, and C&S agreed to buy, 413 Kroger

stores. Kroger alone picked the stores. C&S had no role in selecting the total

number of stores or the store composition—Kroger developed the package and C&S

had to take it or leave it.

169. The 413-store divestiture package was woefully inadequate in terms of

the total number of stores, the selection of specific stores, and the scope of non-store

assets.
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 170. The 413 stores included in the package were not selected through an

objective methodology. Instead, Kroger once again cherry-picked the stores in an

attempt to offload its least profitable stores to C&S, while holding on to its most

profitable stores. The package was designed for Kroger’s economic benefit, at the

expense of securing regulatory approval of the Merger.

171. Kroger’s CEO, Rodney McMullen, participated directly in that

egregious breach of Kroger’s best-efforts obligation. In a September 2023 email

exchange, which the Washington Attorney General featured prominently at trial,

McMullen directed that a specific Seattle store be removed from the divestiture list

because “this store has real estate that is worth a lot.”

172. McMullen’s Kroger-first attitude infected the entire package, as a

comparison of Kroger’s non-divested stores with the stores included in the 413-store

package proves. In particular, Kroger hand-picked Kroger stores to divest with

average sales that were substantially below stores it planned to retain—to the tune

of tens of millions of dollars of sales per year. The Kroger stores it chose to maintain

had higher gross margins and EBITDA as well. This trend was true overall and

within specific metropolitan areas, like Seattle, where Kroger chose to divest only

the worst, lowest performing Kroger stores while retaining the highest performers.

More than 50 of the stores that Kroger marked to divest had negative EBITDA for

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 the fiscal year 2022. Kroger’s strategy was clear—Kroger tried to offload its worst

performing stores in the 413-store package while keeping the best stores for itself.

173. In addition to including too few and poorly-selected stores, Kroger’s

divestiture package also withheld vital non-store assets that were necessary to

persuade regulators that C&S was well-positioned to successfully enter the market,

including manufacturing facilities, access to certain private labels, a technology

stack, and transition services. For example, Kroger did not include the technology

C&S would need to run a grocery store and gave C&S only 18 months to build its

own systems. Kroger also refused to transfer either ownership of or a license to

Albertsons’ “O Organic” and “Signature” private label brands in the package, even

though Kroger already had its own private label brands in those categories and knew

those brands would improve C&S’s ability to successfully operate the divested

stores as well as make the package more palatable to the FTC and State regulators.2

174. At Kroger’s request, Albertsons agreed to sign onto the APA with C&S

as a party, even though it was not necessary to do so given the structure of the

2
At the preliminary injunction hearing in the District of Oregon, C&S CEO Eric Winn
testified that the private labels C&S would acquire from Albertsons—Open Nature,
Waterfront Bistro, Debi Lilly Design, Ready Meals, and Primo Taglio—made up only 10–
20% of Albertsons’ total private label sales. Kroger refused to divest Albertsons’ larger
Signature and O Organics private labels. Mr. Winn also testified that the divestiture
package did not include banners which would have reduced C&S’s risk entering the
market, nor did it include existing customer loyalty programs.

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 Merger: the divestiture was set to close following the closing of the Merger when

Albertsons would be a wholly owned subsidiary of Kroger.

175. Although Albertsons signed the APA, Albertsons did not endorse the

divestiture package or agree that it was sufficient. This was reflected in a separate

Letter Agreement where both Albertsons and Kroger acknowledged and agreed that

Albertsons’ signing of the APA did not affect in any way the rights or obligations

pursuant to the Merger Agreement or constitute an agreement or acknowledgement

on the part of Albertsons that Kroger had complied with its obligations under the

Merger Agreement.

C. The APA Allows Kroger to Increase the Divestiture Package to

650 Stores and Add Additional Non-Store Assets
176. Consistent with the Merger Agreement, the APA for the divestiture

package contemplated that Kroger could divest up to 650 stores to address antitrust

concerns. Section 2.11(a) of the APA provided that if Kroger “determine[d] in good

faith” that it must sell more stores “to obtain . . . Clearances or an Order from a

Governmental Entity,” Kroger could require C&S to buy up to 237 more stores by

submitting to C&S a “Put Notice,” for a total of up to 650 stores. Similarly, if “a

Governmental Entity requires (or has otherwise indicated in connection with any

Action by or before such Governmental Entity that it is unlikely to issue the

Clearances or an Order . . .),” that section allows Kroger to exercise the same “Put
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 Notice” option and require C&S to buy up to 237 more stores, for a total of up to

650 stores.

177. Section 6.2(f) of the APA also required the Parties to “. . . use their

respective reasonable best efforts to modify or agree to such provisions as may be

necessary to satisfy the FTC’s requirements,” which allowed Kroger and C&S to

change or expand the divestiture package to meet regulatory requirements.

178. Section 2.11 of the APA provided a formula to compensate Kroger for

the additional stores sold pursuant to a Put Notice, based on the number and

characteristics of the additional stores. Regardless of the number and characteristics

of the additional stores, however, the purchase price increase was capped at

$725,000,000, up to a total maximum transaction price of $2.525 billion.

179. Section 2.11(c) of the APA also contemplated Kroger adding non-store

assets to the divestiture—specifically, “distribution centers or other assets (including

transportation assets, offices or employees) or . . . modifications to the Transition

Services Agreement that may be reasonably necessary to support such operations”

of the divested stores.

180. Thus, the APA enabled Kroger to meet its unqualified obligation under

the Merger Agreement to divest whatever non-store assets were necessary to satisfy

regulators.

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 181. Section 2.11(e) of the APA further provided that “there shall be no

change to the purchase price” paid by C&S to Kroger “on account of any [non-store

assets] agreed to be transferred between [Kroger] and [C&S].” In other words, if

Kroger exercised a Put Notice, C&S was entitled to receive, at no additional cost,

all additional non-store assets necessary to satisfy the Regulators of its ability to

compete following the Closing, or to defend that ability in enforcement litigation.

182. Despite these provisions, and despite specific concerns raised by

Albertsons about the 413-store package provided for in the APA and the need to act

before litigation, Kroger did not improve the divestiture package.

XI. Kroger Ignores Feedback from the FTC and Others Repeatedly
Informing Kroger that Its Divestiture Package Is Deficient under the
Antitrust Laws

183. Even after C&S had been chosen and Kroger and C&S had formed a

concrete divestment plan, Kroger continually delayed and prolonged final

negotiations with the FTC—moving only incrementally up from its flawed 413-store

proposal and never excising the core set of stores chosen for economic, not

competitive reasons. Kroger ignored feedback from the FTC, C&S, and Albertsons,

who eagerly wanted to close the deal and offered viable paths to doing so.

184. Kroger’s 413-store divestiture proposal was itself a breach of its

obligations under the Merger Agreement to remove antitrust impediments by making

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 “best efforts” and taking “any and all actions”—including the divestiture of

unlimited non-store assets and up to 650 stores selected to give the Merger the best

possible chance of antitrust approval (and not to protect Kroger’s bottom line).

185. Kroger further breached its obligations under the Merger Agreement

through its handling of the subsequent steps in the regulatory process: having

predictably failed to sell the FTC on its initial 238-store and 413-store divestiture

proposals, Kroger had a duty to act “as promptly as practicable” to propose an

appropriate set of stores and non-store assets that addressed the FTC’s feedback,

which it failed to do. And Kroger was obligated to cooperate with Albertsons

throughout this process, which it failed to do as well.

A. Kroger Proposes Its Inadequate 413-Store Package to the FTC

186. The selection of C&S as buyer and the signed APA paved the way

forward for the Parties to certify substantial compliance with the FTC’s Second

Request. Under the then-operative timing agreement for the Merger, the date on

which the Parties certified substantial compliance would begin a 60-day clock at the

FTC, at the end of which the FTC was required to either sue or allow the Merger to

go forward.

187. Concerned about the FTC’s reaction to the lowball, 413-store offer,

Albertsons told Kroger that when it went back to the FTC to present C&S as the

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 divestiture buyer and the APA, Kroger needed to be clear that this was just a starting

point for additional divestiture proposals, not another take-it-or-leave it offer from

Kroger. The Parties understood that if they moved quickly and proposed a

divestiture offer that the FTC was likely to accept, they still could close the Merger

by the end of the year. But Kroger failed to incorporate Albertsons’ advice, in

violation of its commitment in Section 6.3(d) of the Merger Agreement to take “any

and all actions necessary to avoid, eliminate, and resolve any and all impediments

under any Antitrust Law.” Kroger thus caused negotiations to stretch into 2024—

further endangering the Merger.

188. On September 13, 2023, the Parties met with the FTC to discuss

Kroger’s selection of C&S as the divestiture buyer, the APA, and Kroger’s latest

divestiture proposal—the 413-store proposal. During the call, the FTC provided

initial criticism of Kroger’s proposal, explaining that, just as with the initial 238-

store package, Kroger had failed to follow the modeling approaches the FTC uses to

analyze local competitive effects. The FTC asked for additional information about

how Kroger’s economists had selected stores for divestiture.

189. On October 6, 2023, the Parties had a follow-up call with the FTC about

Kroger’s 413-store proposal. The FTC delivered more detailed feedback on the

proposal and raised a number of questions. The FTC remained confused about how

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 stores were being selected and how the 413-store package set up a divestiture buyer

to be able to compete, asking “[w]hy divestiture assets that are geographically

disperse and include a collection of components from two different companies will

succeed.” The FTC requested Kroger evaluate head-to-head competition between

itself and Albertsons by calculating diversion ratios as part of its next proposal

instead. The FTC continued to be concerned about how the Merger and divestiture

would affect labor markets and asked for more information on that topic.

Additionally, the FTC expressed concern about the logistics of transitioning stores

from Kroger to C&S, questioning whether it required too much long-term support

from Kroger.

190. The FTC’s concerns—including about specific local markets and non-

store assets that were missing from the divestiture proposal—were readily

addressable, and the Merger Agreement required Kroger to address them. Yet, for

months after the October 6, 2023 meeting with the FTC, Kroger refused to do so.

Even in later, revised iterations of its divestiture proposal, Kroger continued to build

on the same defective package of 413 stores and to substantially limit which non-

store assets it included.

191. The Parties knew from prior experience with the FTC that by October

6, 2023, the FTC soon would discontinue remedy discussions and shift to litigation

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 preparation, underscoring the urgency with which Kroger needed to act to develop

a satisfactory divestiture package. Albertsons urged a substantial increase to the 650

stores allowed under the Merger Agreement. Time was of the essence, as C&S

would need time to conduct diligence on any new stores it was allocated to buy, and

the FTC needed to review and assess any new proposals put forward by Kroger with

adequate time before deciding on whether to sue. Yet, Kroger largely stopped

engaging with the FTC and dragged its feet.

192. On October 26, 2023, the FTC sent the Parties an email that reiterated

its input and request for information about Kroger’s divestiture package “in the

interest of keeping the process moving.” The FTC again requested that Kroger

explain: (1) its methodology to select stores to be divested, (2) whether the package

would resolve other areas of potential competitive concerns (e.g., labor and

pharmacy services), (3) the anticipated success of the divestiture assets, (4) Kroger’s

expert analysis of the 413-store package, and (5) what customer data the Parties can

transfer to C&S. The FTC also asked that Kroger provide delinquent “[d]ocuments

and information responsive to” requests that the FTC made over one month prior.

193. Kroger’s continued delays and the sentiment from the FTC that

litigation was imminent alarmed Albertsons. Albertsons pushed Kroger to respond

and address regulators’ concerns quickly, but Kroger did not. It was not until later

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 in the Parties’ communications that Kroger revealed the reason for this delay: rather

than being guided by its commitment to take any and all actions in obtaining antitrust

approval, Kroger’s divestiture proposals were being driven and delayed by

insistence that the divestiture package create optimal financial results for Kroger. In

other words, Kroger was deliberately delaying its engagement with the FTC to

engineer a package that would prioritize Kroger’s financial interests over getting the

deal done.

194. Kroger’s most senior executives suggested that this prioritization was

justified, because they were acting according to their fiduciary duties to get the best

deal for Kroger stockholders. But no fiduciary duty permitted Kroger to abdicate its

contractual obligations under the Merger Agreement—including the obligation to

take “any and all actions” necessary to obtain antitrust approval. Kroger already had

entered into the Merger Agreement with full approval from its Board of Directors,

reflecting the board’s view that the Merger Agreement was in the interests of

Kroger’s stockholders. Kroger now had to live with the terms of that agreement,

even if that meant offering a divestiture package that, viewed in isolation, was less

than economically optimal for Kroger.

195. Indeed, Kroger’s counsel already had indicated that they understood the

potential problems with the 413-store divestiture package, but that they were

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 constrained by client expectations from offering additional stores or selecting stores

by a more robust methodology. And whereas Kroger’s economists represented to

Albertsons that they were going back to the drawing board to propose a new

divestiture package without a particular total number of stores in mind, that turned

out not to be the case.

196. Even after receiving feedback from Albertsons that made clear Kroger

must prioritize addressing the FTC’s and other regulators’ antitrust concerns, Kroger

continued to push back on the FTC’s requests for additional information regarding

its divestiture proposals and submitted proposals guided by internal financing

considerations rather than Kroger’s commitments in the Merger Agreement.

B. Kroger’s Small Increase to 510 Stores Fails to Address the FTC’s

Concerns

197. During the week of November 13, 2023—days before the deadline for

the Parties’ notice of intent to certify compliance with the FTC’s Second Request

and when the FTC likely already was preparing for litigation—Kroger finally

responded to the FTC with a new package, and certified substantial compliance with

the FTC’s Second Request. Even then, the proposed package was clearly

insufficient and not responsive to regulatory concerns.

198. On November 16, 2023, Kroger told the FTC it was considering

increasing its proposed divestiture from 413 to 510 stores—still 140 stores less than
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 the 650-store divestiture threshold in the Merger Agreement and APA. Kroger

would delay for yet another month before officially committing to this 510-store

proposal to the FTC. Kroger’s new offer also did not change the composition of the

first 413 stores. Kroger merely added 97 stores on top of that set. This was despite

the FTC’s explicit demand that any divestiture reflect a reasoned methodology, not

cherry picking, and its concerns about the stores in Kroger’s 413-store divestiture

package. It was also despite Kroger’s prior representations that its next proposal

would represent a new, ground-up calculation created by its hired economic experts.

199. The additional 97 stores that Kroger identified to divest as part of its

510-store proposal were selected using a diversion ratio calculation, as the FTC had

instructed Kroger to use, but set up in such a way as to be deliberately helpful to

Kroger. In fact, Kroger admitted to Albertsons that aspects of how it had set up its

diversion ratio analysis diverged from what the FTC had done for prior mergers and

what the FTC had instructed for Kroger to do to calculate diversion ratios. In

analyzing sales diversions from Kroger or Albertsons, Kroger only flagged stores

that were associated with a 25% diversion threshold, not a 20% threshold, a more

conservative and more broadly followed approach. Kroger also calculated the ratio

using a dynamic model, instead of a static model, which was associated with a lower

number of stores being identified. Just changing Kroger’s assumptions to a more

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 appropriate 20% threshold would have caused Kroger to identify at least 80 more

stores for divestiture, and using a static model could have identified 120 more stores

for divestiture beyond those Kroger presented to the FTC.

200. In structuring its 510-store proposal, Kroger also did not address any

other comments or concerns that the FTC had expressed in the months prior

regarding local concentration issues in specific states and setting up a divestiture

buyer for success with the right mix of non-store assets. Nor did Kroger address the

160-170 stores that Albertsons had identified for divestiture in July 2023. As a result

of Kroger’s mash-up approach, some local geographic areas like the Phoenix area

would receive dozens of additional stores, while the areas around Seattle, Los

Angeles, Portland, Dallas, Chicago, Las Vegas, and San Diego would receive three

or fewer stores. On net, California, Washington, and Illinois remained under-

addressed. Despite incorporating diversion ratio analysis for some of the stores it

selected, Kroger’s overall approach had still not changed—it focused only on

maximizing value from the deal, and not on achieving approval by “any and all

actions necessary,” as the Merger Agreement required.

201. On November 22, 2023, the FTC emailed the Parties a statistical

analysis of Kroger’s 413-store divestiture package and its recently-presented 510-

store package. Regarding the 413-store package, the FTC wrote that it was

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 “surprised to find that [Kroger’s] divestiture fails to address dozens, if not hundreds

of ‘markets’” in which the proposed merger would presumptively have an

anticompetitive effect. The FTC again took issue with the methodology Kroger used

to select the 413 stores that Kroger proposed to divest. FTC reiterated its request for

a more detailed explanation of Kroger’s methodology.

202. The FTC stated that Kroger’s new 510-store package suffered from its

reliance on the same flawed methodology as the inadequately-constructed 413-store

list. Simply adding 97 stores on top of the 413-store proposal based on the results

of a poorly formulated diversion ratio analysis did not address the FTC’s concerns

with the 413-store set. Unless Kroger could support its methodology for the

selection of the 413 stores, Kroger needed to craft a new proposal from scratch with

a sound economic rationale.

C. Kroger’s Failure to Propose a Workable Package Leads to a

Renegotiation of the Timing Agreement with the FTC

203. Originally, the Parties had intended to complete the divestiture package

and Merger by the end of 2023, or shortly thereafter. After the certification of

compliance with the Second Request on November 15, 2023 (and subsequent

feedback from the FTC), that target closing date was still possible, as the compliance

certification had put the FTC on a 60-day countdown to either sue to block the

Merger or allow it to go forward.

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 204. Kroger’s continued failure to propose a workable divestiture package

to the FTC destroyed the viability of that timeline. Given that the FTC had indicated

that Kroger needed to go back to the drawing board to get to a workable proposal,

the FTC and Kroger renegotiated the timing agreement on December 15, 2023.

Under the new agreement, the FTC could provide notice at any time that negotiations

had stalled, starting a four-week countdown to the filing of litigation.

205. Despite that additional time, Kroger did not follow the FTC’s clear

instructions regarding the stores in its proposal. Albertsons urged Kroger to provide

meaningful improvements, but Kroger did not heed Albertsons’ advice.

206. By December 6, 2023, Kroger still had not provided the FTC with the

detailed explanation and support for the methodology it used to create its 413-store

list, now the backbone of Kroger’s operative 510-store proposal. In a deposition of

Kroger’s then-Chief Financial Officer, Gary Millerchip, the FTC asked for an

explanation of Kroger’s methodology for selecting the 413 stores. The FTC did not

obtain satisfactory answers, but Millerchip confirmed that Kroger unilaterally

created the 413-store list without input from C&S.

207. Another week passed and Kroger still had not explained its

methodology for constructing its store list. On December 12, 2023, the FTC emailed

the Parties and asked Kroger to “clarify the status of the current asset package.” The

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 FTC further asked whether Kroger had discussed the 510-store package with C&S

and whether Kroger was considering adding any additional assets to the package.

208. Alarmed that Kroger was not moving faster, Albertsons again advised

Kroger to move quickly to answer the FTC’s basic questions about the status of

Kroger’s divestiture package. Despite the extension of the timing agreement,

resulting from the FTC’s obvious dissatisfaction with Kroger’s proposals to date,

Kroger could afford no further delay. Nonetheless, Kroger put forward only

incremental, minor improvements to its proposal from December 2023 through

February 2024, largely continuing to ignore the FTC’s concerns.

209. During a telephone call with the Parties on December 20, 2023, the FTC

told Kroger that its 510-store divestiture package still was inadequate, including

because it would not position C&S to successfully enter the market. Specifically,

the FTC raised concerns about:

a. Challenges C&S would face entering the market because it

would not be acquiring a stand-alone business but, instead, an

assortment of assets from two different companies;

b. C&S’s need to re-banner the majority of stores it would acquire;

c. C&S’s acquisition of insufficient distribution and manufacturing

assets;

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 d. C&S not acquiring a well-known private brand; and

e. Kroger not providing an adequate transition agreement for

information technology, pharmacy, and other services.

210. Again, Albertsons urged Kroger to take this feedback seriously and

move quickly to address it to satisfy antitrust regulators, as the Parties’ window to

reach a settlement with regulators was closing rapidly. In an email sent on December

27, 2023, Albertsons conveyed that Kroger’s 510-store divestiture proposal failed to

address local concentration issues in Arizona, Colorado, Illinois, and Idaho, and that

Kroger’s delay was holding up C&S’s ability to perform due diligence of additional

sores. Non-store assets like re-bannering, distribution assets, manufacturing assets,

private labels, data, and transitions services had not been adequately addressed yet

either.

211. On January 3, 2024, the FTC emailed the Parties and reiterated its

request for “any responses to our November 22 feedback on your initial diversion

analysis, [and] any updates you have on the divestiture package based on our

feedback.” Hamstrung by its inability under the Merger Agreement to unilaterally

approach the FTC, Albertsons was forced to stand by and watch as still more days

ticked by without an adequate response by Kroger.

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 D. The FTC Asks for a Final Offer from Kroger, and Kroger Still
Refuses to Cooperate, Forcing the FTC to Litigate
212. The FTC met with the Parties on January 11, 2024, and told Kroger that

its economic analysis indicated that Kroger’s proposals to date were inadequate. The

next day, the FTC emailed the Parties and requested an updated divestiture

package—with supporting economic analysis—by no later than January 18, 2024.

This was, in essence, the FTC’s request for Kroger’s “best-and-final” offer. The

message was clear: the FTC would likely soon disengage from negotiations and

prepare for litigation by providing the four weeks’ notice provided for in the timing

agreement entered into between the Parties and the FTC.

213. Kroger still had a strong card left to play: it could increase its divestiture

offer and improve the composition of its package to address concerns about

geographic overlap. Kroger also had highly motivated partners in C&S and

Albertsons, which were eager to help get the deal through the regulatory process.

Yet, Kroger continued to insist on unsatisfactory divestiture packages which

prioritized its own financial well-being, even though all other relevant parties,

including Albertsons and the FTC, implored Kroger to make a satisfactory final offer

and gave it multiple opportunities to do so.

214. On January 16, 2024, anticipating that Kroger would be working to

prepare that “best offer,” C&S emailed Kroger and outlined a suggested approach
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 for addressing regulators’ concerns. That approach was tailored to structuring a

package that regulators were likely to approve, addressing local store concentrations

and increasing the total store count, as well as re-bannering, distribution and IT

assets, private brands, and transition services.

215. The next day, January 17, 2024, on the eve of Kroger’s deadline to

submit to the FTC an updated divestiture package (its best and final offer), the Parties

were scheduled to meet to discuss a new proposal by Kroger to divest 541 stores

(still 109 stores short of 650). But Kroger cancelled the meeting and did not

reschedule it—depriving Albertsons of the opportunity to provide meaningful

feedback before the package was submitted to the FTC the next day, in violation of

Section 6.3(b) of the Merger Agreement.

216. In the meantime, Albertsons’ attorneys and business executives

repeatedly reached out to Kroger urging it to make its best and final offer with a

divestiture package at or close to 650 stores.

217. Instead, Kroger continued trickling out proposed stores for divestiture

in dribs and drabs. On January 18, 2024, after already being sued by Washington

(as discussed below in Section XIV), Kroger wrote to the FTC proposing to increase

its divestiture package from 510 stores to 541 stores—an irresponsibly and

inexplicably small increase. Kroger’s proposal still did not address the FTC’s core

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 concerns pertaining to the composition of the stores and other assets. For example,

the package failed to address the gaps that the FTC had identified in C&S’s

distribution centers and other infrastructure to operate the stores that were being

divested. Further, although purportedly drawn up from scratch using diversion ratio

calculations, Kroger conceded that approximately 65-70% of the stores in its new

proposal had been included in its 510-store proposal. And the new proposal was,

like Kroger’s prior proposals, drafted unilaterally by Kroger without input from

C&S. In fact, C&S only learned of the package the day before Kroger submitted it

to the FTC.

218. On January 31, 2024, the FTC wrote to the Parties that Kroger’s most

recent 541-store divestiture offer was “largely unchanged” from its prior offer, as it

“fail[ed] to address the numerous and substantial concerns that [the FTC has]

previously identified,” which had “only been corroborated upon further

investigation.” Specifically, the FTC identified lingering “deficiencies in the list of

individual stores proposed for divestiture” and noted that it “remain[ed] unconvinced

that the package conveys sufficient assets to position [C&S] for success, that the

transition services are appropriately tailored, and that C&S can be successful with

this massive and complex new structure.” The FTC made clear that merely adding

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 stores to the list would not suffice if the proposal did not change the existing store

composition and add other assets.

219. After being presented with one inadequate package after another, the

FTC decided that talks with Kroger no longer were productive. In the same January

31, 2024 letter, the FTC informed the Parties that negotiations were over, and it was

providing the four-week notice under the timing agreement between the Parties and

the FTC, which meant that the Parties could not consummate the Merger prior to

11:59 PM on February 28, 2024.

220. In an effort to avoid litigation with the FTC, Albertsons and C&S

continued to press Kroger to make a viable proposal to the FTC. Yet despite multiple

entreaties and specific requests, Kroger refused to improve its proposal.

221. On February 16, 2024, the FTC again told Kroger that in its view,

Kroger’s divestiture proposal offered only “dispersed” stores to C&S and not the

prospect of a profitable, self-sustaining business.

222. The following week, on February 20, 2024, FTC Chair Lina Khan

reiterated the FTC’s concern that Kroger’s divestiture proposal merely offered a

“hodgepodge” of assets that would not resolve the potential anticompetitive effects

of the Merger, and would not adequately position C&S to successfully enter the

market. FTC Chair Khan and Commissioners Slaughter and Bedoya all indicated

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 that they agreed with the concerns that FTC Staff had raised over the past months,

namely that the proposal was not designed to function as a standalone business and

would not fully address the anti-competitive concerns raised by the FTC.

223. On February 22, 2024, two FTC Commissioners held “last rites”

meetings with the Parties—meetings that typically precede the filing of a lawsuit.

Despite Albertsons’ warnings, Kroger did not budge from its 541-store divestiture

proposal in advance of those meetings.

224. At the meetings, the FTC Commissioners unsurprisingly told Kroger

that its proposed divestiture package was inadequate. They informed Kroger that it

needed to revise its proposed package to include more stores in specific geographical

areas, and that other key changes were needed. They reiterated concerns that the

FTC had been communicating to Kroger for over a year about the need for Kroger

to sell additional assets and banners, to no avail. They expressed a concern about

the proper “formula” for a successful divestiture. They stated that the FTC

repeatedly had communicated to Kroger that its proposed divestiture package

included a disjointed “hodgepodge” of stores that may not coalesce into a successful

business.

225. Further, one FTC Commissioner made the view clear to the Parties that

even as of this late date there was a productive resolution available for them, if they

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 could reach a negotiated settlement with the FTC. Such a reasonable settlement

would require Kroger to divest an adequate number of stores and non-store assets

but would allow the Merger to close and avoid a trial. Albertsons reiterated this

message to Kroger and asked it to do so.

226. Kroger asked the FTC for until February 28, 2024—the very last day

for the FTC to bring suit to challenge the Merger—to make a final proposal.

Albertsons tried yet again to prevail upon Kroger to make a divestiture proposal that

met its obligations under the Merger Agreement and to do so quickly. But on the

eve of a lawsuit with the FTC and the specter of a potential nationwide injunction

that would block the merger, Kroger refused and doubled down on its 541-store

package.

XII. Kroger Fails to Cooperate with Albertsons and Repeatedly Ignores

Feedback from Albertsons
227. In addition to ignoring feedback from regulators about the deficiencies

of its divestiture proposals, time and time, Kroger ignored entreaties from Albertsons

throughout the relevant time period, in breach of Kroger’s obligations under the

Merger Agreement. Albertsons was a good partner to Kroger throughout their

negotiations with regulators, but Kroger refused to hold up its end of the bargain.

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 A. Albertsons Cooperates with Kroger and Attempts to Aid Kroger
in Seeking Regulatory Clearance for the Deal
228. Albertsons held up its obligations under the Merger Agreement in

spades, providing constant support and aid to Kroger to attempt to get the Merger

cleared. Kroger rebuffed that support.

229. From before the Parties’ initial call with the FTC in October 2022, and

continuing after the FTC filed suit against Kroger and Albertson in February 2024,

Albertsons repeatedly attempted to work cooperatively with Kroger on antitrust

strategy. Before the Merger Agreement was signed, Albertsons’ economists created

an analysis of store overlaps, which they shared with Kroger’s economists. After

the deal was signed, Albertsons stood ready to assist Kroger, providing feedback on

talking points for meetings with the FTC, comments on white papers for regulators,

and economic analyses of potential divestiture packages. Economists hired by

Kroger and Albertsons engaged in regulatory meetings to discuss divestiture

packages, and Albertsons and Kroger attorneys and management teams were in

frequent communications as well.

230. Albertsons insisted from the outset of negotiations with regulators that

Kroger offer a meaningful, robust divestiture package, and Albertsons pledged its

support in efforts to do so. Kroger rebuffed Albertsons’ input, just as it did with

regulators. Kroger further cut Albertsons out of critical planning processes for
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 communicating with regulators, and did not share how it was selecting a divestiture

bidder. Albertsons pleaded with Kroger to no avail in dozens of calls, emails, and

letters to include it in planning meetings, to move more quickly and to be responsive

to regulators, including in at least the following examples:

a. On June 27, 2023, Albertsons’ general counsel conducted a call

with Kroger’s general counsel regarding coordination between

the Parties;

b. On at least June 30 and July 3, 2023, outside counsel for

Albertsons emailed outside counsel for Kroger regarding the

divestiture bidder selection process; and

c. Through its general counsel, its outside counsel, and its business

executives (including its CEO), Albertsons frequently contacted

Kroger regarding its then-current divestiture proposals. These

communications occurred on at least July 24, 2023; July 25,

2023; September 8, 2023; September 11, 2023; October 13,

2023; October 25, 2023; October 31, 2023; November 10, 2023;

November 29, 2023; December 19, 2023; December 27, 2023;

January 17, 2024; January 19, 2024; February 1, 2024; February

4, 2024; February 9, 2024; February 21, 2024; February 23,

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 2024; February 27, 2024; March 4, 2024; March 28, 2024; April

4, 2024; July 19, 2024; September 25, 2024; and October 9,

2024.

231. In its communications with Kroger, Albertsons further emphasized the

need for Kroger to address regulators’ labor market concerns. Although the Parties

had ongoing communications about strategies for government and labor group

outreach, Kroger was slow to address Albertsons’ feedback, at certain points

disregarding it altogether. Albertsons, to the extent it was permitted under the terms

of the Merger Agreement, ultimately moved forward with its own plans for public

relations and government relations, such as through direct outreach to State antitrust

regulators. Kroger did not participate in those efforts.

232. Kroger also failed to cooperate with Albertsons in its selection and

preparation of its testifying expert economist, Dr. Mark Israel. Kroger retained Dr.

Israel—the Parties’ primary economic expert supporting the Merger—unilaterally,

without input from Albertsons. Kroger then denied Albertsons any meaningful

opportunity to review and comment on key materials Dr. Israel produced—for

example, giving Albertsons less than one full business day before the deadline for

Dr. Israel’s affirmative expert report to comment on hundreds of pages of new

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 material and failing to provide materials for a court-ordered economics tutorial until

the day before the tutorial was set to take place.

233. At trial, Dr. Israel was forced to admit that the Merger would be

presumptively anticompetitive in at least 22 markets—a failure that the Oregon

Court held was, “on its own . . . sufficient to find that the divestiture will not mitigate

the merger’s anticompetitive effects such that it is no longer likely to substantially

lessen competition.” Dr. Israel’s admission further demonstrates Kroger’s failures

to prepare an appropriate divestiture package consistent with Kroger’s obligations

under the Merger Agreement.

234. Additionally, Kroger’s refusal to coordinate with Albertsons and to

address its well-reasoned concerns flew in the face of its obligation to work closely

with Albertsons in presenting its divestiture strategy to the FTC, including its

obligation in Section 6.3(b) of the Merger Agreement to “permit [Albertsons] to

review in advance and incorporate their reasonable comments” in communications

with the FTC. Freezing out Albertsons’ sound advice also contributed to Kroger’s

ultimate failure to address regulators’ concerns, violating Kroger’s duties to make

“best efforts” and take “any and all actions” to remove antitrust impediments.

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 B. Albertsons Provides Kroger with Detailed Economic Analysis
Showing a Path to Regulatory Approval, but Kroger Ignores It
235. While pressing Kroger to address regulators’ concerns, Albertsons

provided specific economic analyses for Kroger to use in doing so, including at an

in-person meeting between the Parties on July 25, 2023, and in communications on

November 29, 2023, December 19, 2023, February 1, 2024, February 4, 2024,

February 9, 2024, and February 21, 2024. Kroger ignored this valuable information,

as it did with Albertsons’ other input.

236. The FTC typically uses certain mathematical calculations to help guide

its analysis of the competitive effects of a merger and how well those effects are

mitigated by a divestiture package or other remedy. One metric the FTC calculates

is the Gross Upward Pricing Pressure Index (“GUPPI”), which measures a

company’s incentives to raise prices unilaterally after a merger, based on that

company’s pre-merger profit margins and the diversion ratio of sales between the

two merging parties. A GUPPI calculation measures a company’s incentives to raise

prices post-merger in the absence of any merger-induced synergies, entry by other

firms, or competitor re-positioning. A GUPPI calculation can help to determine the

effect that a potential merger can have on the company’s post-merger incentives to

raise prices after it faces a lessening of competition. Historically, the FTC has been

more amenable to approving mergers resulting in “proportionately small” GUPPI

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 measurements. In practice, this is typically a GUPPI below 5%, although the FTC

has not officially adopted this threshold as a safe harbor for merger clearance review.

237. In addition to being used as part of a GUPPI analysis, a “diversion

ratio” can also be analyzed on its own. A diversion ratio measures the proportion of

consumers who would switch from one product to another in the face of a small price

increase and helps to identify whether two products are close substitutes for each

other. This ratio helps regulators to understand the area of effective competition

between products and sellers, which may constitute a relevant antitrust market.

Agencies and private parties also evaluate an Herfindahl–Hirschman index (“HHI”),

a common measure of market concentration calculated by squaring the market share

of each firm competing in a market before and after a merger.

238. Using these economic concepts and metrics that are often utilized by

the FTC, Albertsons repeatedly provided Kroger with economic analyses and

models regarding a divestiture proposal to remedy the FTC’s and state Attorneys

Generals’ concerns. In its correspondence to Kroger on November 29, 2023,

December 19, 2023, February 1, 2024, February 4, 2024, February 9, 2024, and

February 21, 2024, Albertsons offered Kroger its own economic analyses supporting

a viable store divestiture proposal.

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 239. For example, Albertsons’ economists developed a store package using

a 3% GUPPI limitation that would require a divestiture of fewer than 650 stores,

thus demonstrating how Kroger could address the FTC’s concerns about post-

Merger concentration without triggering a Material Divestment Event under the

Merger Agreement. A 3% GUPPI limitation is considered conservative, as it is well

below a 5% threshold commonly used as part of merger analysis, and therefore

attractive to the FTC. Albertsons shared this analysis with Kroger and repeatedly

informed Kroger—including on February 1 and 4, 2024—that Albertsons’

economists were available to assist Kroger’s team with finalizing an updated,

realistic proposal to the FTC.

240. Albertsons’ economists also evaluated the HHI index of numerous

packages proposed by Kroger and communicated the results of those analyses to

Kroger, in particular, that Kroger needed to divest more stores and a different mix

of stores than it had included in its 238-, 413-, and 510-store packages. These

analyses matched feedback Kroger was receiving from the FTC, which flagged

concerns with the HHI in local markets resulting from the merger.

241. Kroger ignored Albertsons’ analyses and persisted in proposing an

inferior divestiture package, as measured by the FTC’s accepted metrics.

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 242. By freezing Albertsons out of this process, Kroger violated its

contractual obligation to cooperate with Albertsons, as well as its obligations to use

reasonable best efforts, best efforts, and to take any and all actions to secure

regulatory approval of the Merger.

XIII. The FTC Files Suit to Enjoin the Merger

243. On February 26, 2024, the FTC, joined by the states of Arizona,

California, Illinois, Maryland, Nevada, New Mexico, Oregon, and Wyoming and the

District of Columbia, filed a federal action against Kroger and Albertsons in the

District of Oregon, seeking to enjoin the Merger nationwide as anticompetitive.

244. Consistent with the FTC’s prior criticisms, and with the concerns

Albertsons had raised to Kroger time and again, the FTC alleged in its complaint

that Kroger’s proposed divestiture package did not include sufficient store and non-

store assets.

245. The FTC criticized the “hodgepodge” of stores that Kroger proposed to

sell to C&S, as well as the failure to transfer necessary “banners, distribution centers,

information technology, corporate contracts, loyalty programs, manufacturing

assets, pharmacy resources, data analytics and e-commerce tools, employees, and

others” that a successful supermarket business required.

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 246. The FTC’s complaint also alleged that C&S would “need to construct

a brand new supermarket business on the fly” because key assets were not included

in Kroger’s divestiture package.

247. The content of the FTC’s complaint was not a surprise to Kroger. For

months before it filed its complaint, the FTC repeatedly had expressed the same

concerns to Kroger regarding deficiencies that the FTC perceived in Kroger’s

various divestiture packages, but Kroger failed to remedy the concerns.

XIV. Kroger Ignores Feedback from State Antitrust Regulators that the
Proposed Divestiture Package Is Deficient
248. The FTC was not the only regulator with whom the Parties would need

to engage and from whom skepticism of the Merger would be expected. Kroger’s

foot-dragging to avoid proposing a more robust divestiture package resulted in

needless scrutiny from state Attorneys General, which culminated in the states of

Washington and Colorado filing independent lawsuits to block the Merger.

249. The Attorneys General of the District of Columbia, California, Arizona,

Idaho, Illinois, and Washington commenced a multi-state investigation shortly after

the announcement of the Merger. Additional states participated in reviewing

materials produced to the FTC as a result of the Second Request. Both Kroger and

Albertsons understood that state Attorneys General, like the FTC, would want to see

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 a divestiture package that ensured their constituents would be protected from anti-

competitive effects.

250. Albertsons sought to mitigate the risk of state enforcement action.

Albertsons ensured Kroger was fully informed of its interactions with state

Attorneys General. Albertsons’ General Counsel met with the Attorneys General of

Arizona, California, Colorado, Nevada, Washington, and the District of Columbia

in the fall and winter of 2023. During those meetings, Albertsons’ General Counsel

provided information about the Merger and its likely effect on local competition in

relevant states. He also stood ready to answer regulators’ questions, and often did,

including in state-specific letters to Attorneys General offices in at least California,

Colorado, Nevada, Washington, and the District of Columbia. Albertsons also

provided those offices information about the nature of competition that Albertsons

faces locally and nationally, its track record for prior mergers, and how Albertsons

planned to address employees at affected stores, among other information.

251. Albertsons informed Kroger of its outreach and suggested that Kroger

do the same. Kroger ignored Albertsons.

252. After Kroger selected C&S as the divestiture buyer in September 2023,

state regulators sought information from C&S. In compliance with the multi-state

investigation, on October 31, 2023, C&S responded to questions from the California

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 Attorney General and explained the significant deficiencies of Kroger’s 413-store

divestiture package. C&S commented that the package included an ill-fitting mix of

assets and banners from Albertsons and Kroger. C&S wrote that the package also

did not include a full range of private brands or well-known brands, a cohesive IT

system, or full-function distribution centers in every geographic region where

divested stores operated.

253. On January 16, 2024, the State of Washington filed the first government

enforcement action seeking to enjoin the Merger in Superior Court in Seattle.

Washington alleged that Kroger’s 413-store package was “woefully inadequate to

restore the competition lost” through the Merger. It likewise expressed serious

doubts as to C&S’s ability to operate and rebanner the divested stores in Washington

and serve as a viable competitor in Washington markets.

254. Instead of responding to Washington’s lawsuit by improving its

divestiture package, Kroger largely disregarded the allegations in the lawsuit as well

as C&S’s and Albertsons’ similar comments related to the lawsuit.

255. For example, while the FTC was finalizing its view of the Merger and

preparing for litigation, the State Attorneys General also expressed strong concerns

with the inadequacy of Kroger’s divestiture proposals. Kroger and Albertsons each

met separately with Colorado’s Attorney General Phil Weiser in early February,

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 where he gave specific and detailed feedback on the inadequacies of Kroger’s

divestiture strategy and asset package. Whereas Albertsons pleaded with Kroger to

agree to a divestiture agreement that would address regulators’ concerns, including

the most recent issues stated by Attorney General Weiser pertaining to the Colorado

area, Kroger did not improve its offer.

256. Unsurprisingly, Kroger’s continued failure led to another state Attorney

General filing suit. On February 9, 2024, the Attorney General of Colorado

informed C&S that he believed that Kroger was not acting in good faith because it

had designed the divestiture package to cause the divestiture to fail. The Attorney

General also stated the obvious: these ongoing and substantial divestiture

negotiations should have taken place in 2023. The Attorney General outlined

multiple deficiencies in the proposed divestiture package, including missing

distribution centers, private label rights, banners, and access to loyalty data.

257. The next week, on February 14, 2024, the State of Colorado sued

Kroger and Albertsons in state court in Colorado, alleging that the Merger was

anticompetitive and seeking to enjoin it.

258. The Colorado Attorney General also contended that Kroger’s proposed

divestiture of stores was “woefully insufficient to restore the competition”

eliminated by the Merger. Moreover, the Colorado Attorney General asserted that

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 Kroger’s 413-store proposed package did not divest enough “infrastructure” to C&S

to allow C&S to be a “viable competitor” in Colorado after the Merger. Colorado

thus requested that the Court find the Merger unlawful under Colorado law and

enjoin Kroger and Albertsons from consummating the transaction.

259. Specifically, the Colorado Attorney General alleged the following

deficiencies with Kroger’s proposed divestiture package, many of which C&S and

Albertsons had urged Kroger to address in the preceding weeks and months:

a. It did not include enough stores in Colorado to give C&S

“adequate scale to compete effectively and cure the

anticompetitive effects of the” Merger;

b. There was a significant re-bannering risk as C&S would be

“required to re-banner over 80% of divested stores across the

country,” including all but two in Colorado;

c. There was high integration risk since C&S is not acquiring a

standalone business line;

d. C&S did “not have enough employees to run the business”; and

e. C&S was “not getting sufficient distribution assets across the

country.”

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 260. Kroger’s failure to address the problems raised by the Washington and

Colorado Attorneys General further illustrates Kroger’s overall failure to take “any

and all actions necessary to avoid, eliminate, and resolve … impediments under any

Antitrust Law.”

XV. C&S Offers Kroger a Final Path to Regulatory Approval, but Kroger
Refuses

261. After the three lawsuits were filed, C&S extended Kroger one final

lifeline. On March 1, 2024, C&S sent Kroger a term sheet that responded to

regulators’ outstanding concerns. C&S offered to purchase a more highly

concentrated package of stores in California, Nevada, and Washington and up to 650

stores in total. C&S also requested improved banners in key geographies, more

robust distribution assets, improved IT and integration support, improved transition

support, and improved private labels. C&S’s offer thus represented a better path to

avoid, eliminate, and resolve all impediments under antitrust law with respect to the

Merger before the Outside Date.

262. Despite Kroger’s obligation to take “any and all actions” to remove any

impediments to the Merger and the pending litigations to block the deal, Kroger

rejected C&S’s offer. Kroger stated that it would only accept the terms in the

March 1 letter if C&S would pay “market price,” i.e., several billion dollars more

than C&S was willing to pay. Kroger’s insistence that C&S pay the “market price”
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 laid bare Kroger’s willful rejection of its duty under the Merger Agreement to agree

to a plan that would garner regulatory approval, whether the financial terms favored

Kroger or not. Kroger did not consult Albertsons before rejecting C&S’s proposal.

263. Kroger then made a counteroffer of divestiture packages of either 564

or 613 stores—still short of the 650-store divestiture threshold set forth in the Merger

Agreement and APA. Both of these offers would be under “the terms set forth in

the APA,” or in other words, the terms that failed to address critical non-store assets

and other FTC concerns. As a result, and contrary to Albertsons’ advice, Kroger’s

counterproposal suffered from many of the same issues C&S’s offer was designed

to fix—including the lack of geographic diversity among stores, which the FTC had

stressed was a dealbreaker.

264. To illustrate the point, two days after Kroger rejected C&S’s offer

(without consulting Albertsons), Albertsons sent Kroger an analysis of the Hosken-

Tenn diversion model GUPPI for each Kroger proposal, which laid bare the clear

deficiencies in Kroger’s latest offer. Whereas C&S’s offer for 650 stores resulted in

no stores with GUPPI calculations above 3.5% and only 45 stores with a GUPPI

above 3%, Kroger’s 613-store proposal resulted in 95 stores above a 3% GUPPI, 24

stores above 3.5%, two stores above 4%, and one store above 5%. C&S’s proposal

was far superior and went meaningfully further in addressing regulatory concerns

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 about post-merger upward pricing pressure. This was especially the case in the local

geographies regulators were most concerned about, including the areas around

Dallas, Seattle, Las Vegas, Chicago, and Phoenix.

265. Nonetheless, on March 10, 2024, without consulting with Albertsons in

good faith as required under the Merger Agreement, Kroger submitted to C&S a

“Put Notice” for an additional 237 stores, on top of the same nonviable 413 stores

identified in the APA, for a total of 650 stores. Although the number of stores had

been increased, the mix of stores continued to be inadequate because Kroger was

still employing a flawed methodology in store selection, which the FTC had

informed Kroger it would not accept. Kroger’s 650 stores were clearly deficient

when compared to the 650 stores in C&S’s offer, as they did not address local

concentration or non-store assets nearly as comprehensively.3 For example, C&S

already would be required to re-banner nearly 80% of the stores in Kroger’s 413-

store package, and yet Kroger was adding additional stores that C&S would need to

re-banner. Kroger also included limited distribution and back-office support to

operate the 237 stores it was adding. Like Kroger’s prior offers, this offer was take

3
For example, Kroger’s package still resulted in 8 stores above the 3.5% GUPPI threshold,
including two stores above 4% and one above 5%, compared to zero stores above those
thresholds in C&S’s offer.

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 it or leave it. Further, when Albertsons tried to get clarity from Kroger about whether

Kroger’s economists had selected the new stores that were being added, Kroger

would not clarify its methodology.

266. C&S responded on March 15, 2024, refusing to purchase the 650 stores

identified by Kroger. C&S observed, among other things, that Kroger’s Put Notice

did not address the local concentration concerns raised by regulators related to the

original 413-store divestiture package—the whole point of continuing to negotiate

the divestiture while already defending against multiple litigations. Aspects of

Kroger’s proposal arguably made the divestiture package worse than even Kroger’s

own prior offers, because C&S would be required to rebanner more stores and

because C&S was not being provided adequate distribution resources to service the

additional stores. Simply put, adding additional stores onto an already deficient

package would not resolve regulators’ concerns about C&S’s ability to enter and

compete in the market.

267. Three days later, on March 18, 2024, Kroger responded to C&S

admitting that its proposal would not resolve all regulatory concerns. Nonetheless,

Kroger told C&S that Kroger’s Put Notice was enforceable under the APA.4

4
Kroger conceded that the divestiture package embodied in the Put Notice would not
“resolve all regulatory concerns” the FTC had raised with Kroger’s divestiture proposals,

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 268. This Put Notice self-evidently failed to meet Kroger’s obligations to

Albertsons in the Merger Agreement. In face of ongoing litigations, Kroger was

required under the Merger Agreement to use its best efforts and to take any and all

actions necessary to avoid, eliminate, and resolve any and all impediments under

any antitrust law with respect to the Merger, and to take any and all actions to

eliminate each and every impediment under any antitrust law to close the Merger

before October 9, 2024. Yet, by its own admission, the Put Notice was not issued

with the aim of resolving the FTC’s remaining concerns.

269. For the next week, Kroger and C&S negotiated Kroger’s latest

proposal. Kroger refused to make C&S an offer for the 650 stores and non-store

assets that C&S requested.

270. On March 25, 2024, Kroger sent C&S a new proposal, this time

including only 579 stores. Kroger’s new 579-store proposal was both smaller and

less responsive to the FTC’s stated concerns than the 650-store package C&S had

proposed. The offer did not address local concentration issues nearly as well, and it

provided for the transfer or temporary use of some additional non-store assets, but

at a much lower level than C&S had requested on March 1, 2024. Specific

including “concerns with rebannering,” but took the position that this failure was irrelevant
because, under the APA, “the Put Notice need not resolve all regulatory concerns.”

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 geographies that the FTC had requested for Kroger to address remained under-

addressed, including areas around Los Angeles, Las Vegas, Seattle, and San Diego.

Kroger also did not agree to transfer banners that C&S had requested for months,

including the Safeway banner, and it did not transfer plum private labels, like

“Signature” and “O Organics.”

271. Albertsons warned Kroger that, yet again, its latest package did not go

far enough in addressing the FTC’s concerns and was not sufficient under its

obligations. For example, Kroger’s new proposal resulted in 59 stores above the 3%

GUPPI threshold and 8 stores above the 3.5% threshold, compared to only 45 stores

above the 3% threshold in C&S’s offer and no stores over the 3.5% threshold.

Albertsons pleaded for Kroger to instead agree to the terms proposed by C&S on

March 1, 2024. Kroger did not do so.

272. Because Kroger was unwilling to accept C&S’s 650-store package,

C&S responded with its own revised 579-store package. Even though C&S’s

package included the same number of stores that Kroger had insisted on, Kroger

refused to entertain the stores C&S selected for that offer, again putting its own self-

interest ahead of its commitment to take “any and all actions” necessary for

regulatory approval.

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 273. Kroger and C&S continued to deliberate over a package of 579 stores

and, on April 22, 2024, the Parties and C&S executed an Amended and Restated

Asset Purchase Agreement (“A&R APA”) for 579 stores. This final set of stores

was proposed entirely by Kroger; C&S did not have an input into the final store

selection.

274. Albertsons expressed strong concerns about the 579-store proposal’s

ability to satisfy regulators’ concerns before it was publicly announced. But Kroger

refused to change its approach. Albertsons also urged Kroger to include the same

“Put Notice” framework in the A&R APA as had been included the original APA,

so that the package could be increased if the FTC disapproved of it. Kroger again

pushed back, and the A&R APA ultimately only required the Parties to exercise

“reasonable best efforts” to modify any provision, obligation, or agreement.

275. Kroger’s refusal to consider viable paths toward regulatory approval

suggested by both Albertsons and C&S laid bare that its ultimate goal was not to

uphold its agreement to take “any and all actions” necessary for regulatory approval,

but rather to maximize the profitability of any proposed divestiture package, even at

the risk of jeopardizing regulatory approval and, thus, the Merger.

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 XVI. During the Litigations to Enjoin the Merger, Kroger Continues Its Self-
Serving Conduct
276. As the litigations progressed and in the weeks leading up to the FTC

preliminary injunction hearing and state trials, Kroger continued to breach its

obligations under the Merger Agreement. Kroger refused to cooperate with

Albertsons to improve its divestiture package and ensure that its expert witness could

support the Merger, in blatant violation of its obligations under the Merger

Agreement to cooperate with Albertsons in good faith, and use reasonable best

efforts, best efforts, and take any and all actions necessary to remove any

impediment to closing the Merger.

277. As litigation proceeded, the perceived deficiencies the FTC, state

Attorneys General, C&S, and Albertsons had highlighted during negotiations were

unsurprisingly front and center. The plaintiffs in all three lawsuits exploited

Kroger’s shortcomings, featuring them prominently in opening statements, during

the evidence, and in closing. At trial, Kroger’s expert was forced to concede that

nearly two dozen geographic markets would have presumptively anticompetitive

levels of concentration after the Merger, even accounting for the divestiture.

278. Unsurprisingly, the FTC focused a significant portion of the

preliminary injunction hearing and post-trial briefing on the inadequacies of the

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 divestiture package. That strategy was later replicated by Washington and Colorado

in their respective trials.

279. The FTC, along with Washington and Colorado, highlighted that

Kroger picked a divestiture buyer without experience running a large grocery retail

operation. They highlighted C&S’s struggles as a buyer in prior divestitures and

characterized C&S as a “retail liquidator” because of its history of closing stores

after acquisitions when they became unprofitable. Indeed, it came out at trial that

Yael Cosset, a senior executive at Kroger who was heavily involved in divestiture

planning, had communicated to others at Kroger that it was a “no brainer” to pick a

different divestiture buyer over C&S. And the Washington Court expressly found

that Kroger “selected C&S as the divestiture buyer over a buyer that other senior

executives thought more capable.”

280. The FTC and Washington highlighted that Kroger failed to provide

C&S the banners or private labels it requested.

281. And the FTC and Washington highlighted that Kroger, not C&S (or

Albertsons), picked the stores to be divested. Due to Kroger’s failure to consider

C&S’s and Albertsons’ views during the process, the FTC was able to obtain an

admission from C&S’s CEO Eric Winn at the preliminary injunction hearing that

“C&S [did not] have a role in selecting the 579 stores in” the final April 2024

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 package. In its closing arguments, Washington highlighted the example of one store

that Kroger’s management suggested be included in the divestiture package, but was

vetoed by Kroger’s CEO Rodney McMullen because the store was too valuable to

Kroger.

282. Also at the preliminary injunction hearing in Oregon, Kroger’s own

expert Dr. Israel agreed that Kroger’s divestiture did not resolve all competitive

concerns—a “remarkable concession,” as the FTC emphasized in its post-trial brief,

that “alone dooms the divestiture.” Instead of bolstering the case for the Merger as

intended, because of Kroger’s willful breach, Dr. Israel’s testimony became a strong

point for the FTC.

283. On September 25, 2024, after the FTC preliminary injunction hearing

concluded and while the Colorado and Washington trials were ongoing, Albertsons

again contacted Kroger, pleading for it to improve its divestiture proposal. Kroger

did not act on this request.

284. After the FTC, Colorado, and Washington trials concluded, Kroger

remained obligated to make “best efforts” and take “any and all actions” to prevail

while awaiting the Courts’ decisions. Yet, during Kroger’s quarterly earnings call

on December 5, 2024, with the Court decisions still outstanding, Kroger sabotaged

its own defense by publicly walking back its representations to the relevant Courts

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 about the Merger’s procompetitive benefits. On the earnings call, Kroger CEO

McMullen volunteered in his prepared remarks that “regardless of the outcome of

the trials, Kroger is operating from a position of strength” and “we don’t need to do

mergers to make our business successful.” Those gratuitous statements contradicted

Kroger’s closing argument in the District of Oregon preliminary injunction hearing,

where its counsel had represented to the Court that the Merger would be

procompetitive because Kroger “needs the help of this merger to continue to

succeed.” Kroger’s counsel had also described the Merger as a “fundamental

imperative” to respond to the “existential threat to the corner grocery store” posed

by competitors like Walmart, Costco, and Amazon. McMullen’s comments on the

December 2024 earnings call signaled that Kroger was not serious about its

representations at trial. While undermining its defense of the Merger, those

comments aligned with Kroger’s ulterior motive to weaken Albertsons as a future

competitor by implying to the market that Albertsons’ value to Kroger had

diminished.

XVII. Kroger’s Failure to Abide by Its Contractual Obligations Results in the

Merger Being Enjoined

285. As a direct result of Kroger’s refusal to work with Albertsons in good

faith and abide by its contractual obligations, the U.S. District Court for the District

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 of Oregon enjoined the Merger on December 10, 2024. The State of Washington

King County Superior Court also enjoined the merger on the same day.

286. The Oregon Court found that the stores Kroger included in the

divestiture package were insufficient. To that end, the Court repeatedly emphasized

Kroger’s economics expert’s concession that at least 22 markets were presumptively

anticompetitive, even after the divestiture. “This evidence, on its own,” the Court

held, “is sufficient to find that the divestiture will not mitigate the merger’s

anticompetitive effect such that it is no longer likely to substantially lessen

competition.”

287. The Oregon Court also criticized the non-store assets included in

Kroger’s divestiture package. For example, the Court credited Plaintiffs’ suggestion

that “C&S may not be receiving the most desirable banners” and noted that C&S

would have to rebanner extensively, including introducing entirely new banners in a

number of markets. The Court also emphasized that “C&S will have limited use of

the Albertsons Signature and O Organics private label brands.” And the Court

credited Plaintiffs’ expert’s testimony that “because defendants will have a more

robust loyalty program, customer data, and targeted advertising, C&S is vulnerable

to having defendants target its customers after the merger.” In short, as the Oregon

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 Court put it, “[t]he structure of the divestiture package . . . creates many risks for

C&S that could make it difficult to compete.”

288. In addition, the Oregon Court endorsed the FTC’s critiques of C&S as

a divestiture buyer, finding that there were “serious concerns about C&S’s ability to

run a large-scale grocery business.” In particular, the Court emphasized that “C&S

does not have any experience running a large portfolio of retail grocery businesses,”

and that C&S’s “past divestiture purchases have not been successful.” The Court

maintained that view even though C&S would have retained thousands of existing

Kroger and Albertsons employees and executives. Those employees’ “presence,”

the Court held, “does not fully mitigate C&S’ inexperience and lack of success in

grocery retail and cannot overcome the difficulties inherent to the selection of assets”

Kroger included in its divestiture package.

289. The Washington Court identified many of the same deficiencies in

Kroger’s divestiture package and selection of a divestiture buyer. As to the stores

Kroger chose to include, the Washington Court held that “Kroger kept the best

performing assets for itself,” including by “retaining the UVillage QFC store in

Seattle because Kroger CEO Rodney McMullen personally requested that it not be

divested due to its significant real estate value.” As the Court found: “Where it

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 could, Kroger followed a simple rule: if a store was a ‘good EBITDA producer, . . .

we wouldn’t want to divest.’”

290. Like the Oregon Court, the Washington Court credited the State’s

criticisms of C&S. The Washington Court concluded that “Kroger Picked an

Inexperienced and Ill Equipped Divestiture Buyer” and that “Kroger was well aware

of C&S’s limited retail capabilities when it selected C&S as the divestiture buyer.”

XVIII. Kroger’s Thwarting the Merger Harms Albertsons

291. Albertsons and its stockholders have suffered and will be reasonably

certain to suffer harms as a result of Kroger’s breaches of the Merger Agreement.

292. First, Albertsons’ stockholders are facing the loss of a considerable

Merger premium that they expected to receive in return for Albertsons agreeing to

enter into the Merger Agreement. Albertsons agreed to a transaction that valued the

company at approximately $24.6 billion and would provide $34.10 per share in

consideration to Albertsons’ stockholders, representing a 32.8% premium over

Albertsons’ closing stock price of $25.67 on October 12, 2022, the day before news

of the Merger became public. That loss to Albertsons’ stockholders, totaling in the

billions of dollars, is due directly and causally to Kroger’s breach as are further

stockholder losses that have followed.

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 293. Second, Albertsons invested years of time, energy, and resources to try

to make the Merger a success. Albertsons hired scores of advisors from bankers to

attorneys to economists to assist with all aspects of contract drafting, antitrust

review, integration oversight, and investor relations, to the tune of millions of dollars

in fees and costs. Albertsons also invested considerable energy and resources to

integration work with Kroger, and millions more in legal and expert consulting fees

to defend the Merger in multiple litigations. Albertsons continued to perform and

stand ready to close even after the passage of the Outside Date. Those are all sunk

costs.

294. Third, Albertsons has put itself at a competitive disadvantage vis-à-vis

one of its largest competitors—Kroger—who has had an up-close look into almost

every aspect of Albertsons’ business, and other rivals, who have had two and a half

years to invest and innovate while Albertsons was stuck in a standstill as a result of

the Merger. Under Section 6.1(a) of the Merger Agreement, Albertsons was

prohibited from “conduct[ing] its business and the business of the Company

Subsidiaries other than in the ordinary course consistent with past practices in any

material respect.” The operating covenants forced Albertsons to consult with Kroger

on a litany of business decisions. As a result, for the past two years, Albertsons has

been constrained in making any material changes in how it allocates existing capital

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 and investments. The only exceptions to this stand-still requirement are if the change

meets a limited category of exceptions or if Albertsons reveals its innovative

strategies to Kroger and Kroger consents—which has its own downsides for

Albertsons. Due to these terms, Albertsons largely has been unable to react to and

address changes in the grocery sector, such as the growing use of digital media and

the increased competitiveness of ethnically-focused grocery stores. Now, without

the Merger, Albertsons is left to play catch up in an increasingly crowded field. And,

in instances where Albertsons sought Kroger’s consent to make changes to its

business or pay employees retention bonuses not contemplated by existing

employment agreements to retain key personnel, Kroger refused, causing loss of

personnel. Albertsons agreed to the limitations in Section 6.1 only because Kroger

had committed to use its best efforts and take any and all actions to remove

regulatory impediments to closing the Merger—commitments Kroger breached.

295. In addition to abusing its veto power over Albertsons’ ability to make

significant strategic decisions, Kroger used its position as the proposed buyer to

denigrate Albertsons and weaken its competitive position—for example, by telling

the market during Kroger’s December 5, 2024 earnings call that Kroger did not

“need” Albertsons for the future of its business, despite having publicly represented

the opposite in antitrust litigation.

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 296. Fourth, and relatedly, the failure of the Merger leaves Albertsons facing

the very dilemma the Merger was intended to solve: how to better compete with

grocery titans like Walmart, Costco, Amazon, and Target. Albertsons has lost out

on the ability to pursue competitive advantages and synergies like those that would

have resulted from the Merger. As Albertsons’ counsel explained in open court,

lacking similar economies of scale, Albertsons is unable to offer prices as low as its

competitors. Kroger and Albertsons had anticipated synergies in the billions of

dollars as a result of supply chain and manufacturing consolidation, procurement

optimization, new opportunities for brands and private labels, and optimization of

certain corporate and back-office support. Albertsons and Kroger had also

anticipated significant new revenue from new projects like a national advertisement

platform. Without the Merger, Albertsons will be forced to recalibrate its strategy

to attempt to achieve the kinds of benefits the Merger would have afforded.

COUNT I
(Breach of Contract, Merger Agreement § 6.3(a))

297. Albertsons repeats and incorporates all of the allegations set forth in the

preceding paragraphs as if they are fully set forth herein.

298. Albertsons and Kroger entered into the Merger Agreement.

299. The Merger Agreement is a binding contract.

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 300. Albertsons performed all its obligations under the Merger Agreement.

301. Section 6.3(a) of the Merger Agreement required Kroger to use its

reasonable best efforts to “take or cause to be taken all actions . . . necessary, proper

or advisable to cause the conditions to the Closing to be satisfied as promptly as

reasonably practicable and to eliminate, and resolve any and all impediments under

any Antitrust Law with respect to the Transactions.”

302. Through the actions and inactions described above, Kroger failed to use

its reasonable best efforts to take the actions necessary to satisfy Closing conditions

as promptly as reasonably practicable and eliminate any and all impediments under

any antitrust law. Those actions include, but are not limited to, Kroger’s inadequate

238-store offer, Kroger mismanaging the process of identifying a divestiture buyer,

Kroger’s inadequate 413-store offer, Kroger’s inadequate 510-store offer, Kroger’s

inadequate 541-store offer, Kroger declining C&S’s 650-store offer, Kroger entering

into an insufficient A&R APA, Kroger refusing to supplement the A&R APA, and

Kroger failing to develop an adequate divestiture package in the more than two years

since the Merger Agreement was signed.

303. Through the actions and inactions described above, Kroger materially

breached the Merger Agreement.

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 304. Section 1.1 of the Merger Agreement defines “Willful Breach” as a

“material breach … that is the consequence of an act or omission by the breaching

[P]arty with the actual knowledge that the taking of such act (or, in the case of an

omission, failure to take such act) would cause or constitute such material breach,

regardless of whether breaching was the object of the act or failure to act.”

305. Kroger’s breach of Section 6.3(a) of the Merger Agreement constituted

a Willful Breach. Kroger had actual knowledge that its actions and inactions

violated the Merger Agreement and would make securing regulatory approval less

likely. Kroger chose to pursue its own economic interests by trying to hold on to as

many valuable assets as it could through the Merger and divestiture, instead of

striving to secure regulatory approval of the Merger, despite clear and consistent

feedback from the FTC, the state Attorneys General, C&S, and Albertsons that its

approach was unlikely to lead to regulatory approval.

306. Kroger’s willful breach of the “reasonable best efforts” provision of the

Merger Agreement has caused and continues to cause significant damages to

Albertsons.

307. Kroger’s willful breach of the “reasonable best efforts” provision of the

Merger Agreement has caused and continues to cause irreparable harm to

Albertsons.

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 308. Kroger’s willful breach of the “reasonable best efforts” provision of the

Merger Agreement caused Albertsons to spend over two painstaking years

attempting to consummate the Merger. During that time, Albertsons suffered

uncertainty regarding its future dealings, employee flight, investor doubts, and harm

to its brand, and Albertsons was forced to forgo other strategic projects as it

attempted to salvage the Merger.

COUNT II

(Breach of Contract, Merger Agreement § 6.3(d))

309. Albertsons repeats and incorporates all of the allegations set forth in the

preceding paragraphs as if they are fully set forth herein.

310. Albertsons and Kroger entered into the Merger Agreement.

311. The Merger Agreement is a binding contract.

312. Albertsons performed all its obligations under the Merger Agreement.

313. Section 6.3(d) of the Merger Agreement required Kroger to use its “best

efforts to take, or cause to be taken, any and all actions necessary to avoid, eliminate,

and resolve any and all impediments under any Antitrust Law with respect to the

Transactions.”

314. Through the actions and inactions described above, Kroger failed to use

its best efforts to avoid, eliminate, and resolve any and all impediments under the

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 antitrust law as promptly as practicable. Those actions include, but are not limited

to, Kroger’s inadequate 238-store offer, Kroger mismanaging the process of

identifying a divestiture buyer, Kroger’s inadequate 413-store offer, Kroger’s

inadequate 510-store offer, Kroger’s inadequate 541-store offer, Kroger declining

C&S’s 650-store offer, Kroger entering into an insufficient A&R APA, Kroger

refusing to supplement the A&R APA, and generally, Kroger failing to develop an

adequate divestiture package in the more than two years since the Merger Agreement

was signed.

315. Through the actions and inactions described above, Kroger materially

breached the Merger Agreement.

316. Section 1.1 of the Merger Agreement defines “Willful Breach” as a

“material breach … that is the consequence of an act or omission by the breaching

[P]arty with the actual knowledge that the taking of such act (or, in the case of an

omission, failure to take such act) would cause or constitute such material breach,

regardless of whether breaching was the object of the act or failure to act.”

317. Kroger’s breach of Section 6.3(d) of the Merger Agreement constituted

a Willful Breach. Kroger had actual knowledge that its actions and inactions

violated the Merger Agreement and would make securing regulatory approval less

likely. Kroger chose to pursue its own economic interests by trying to hold on to as

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 many valuable assets as it could through the Merger and divestiture, instead of

striving to secure regulatory approval of the Merger, despite clear and consistent

feedback from the FTC, the state Attorneys General, C&S, and Albertsons that its

approach was unlikely to lead to regulatory approval.

318. Kroger’s willful breach of the “best efforts” provision of the Merger

Agreement has caused and continues to cause significant damages to Albertsons.

319. Kroger’s willful breach of the “best efforts” and provision of the

Merger Agreement has caused and continues to cause irreparable harm to

Albertsons.

320. Kroger’s willful breach of the “best efforts” provision of the Merger

Agreement caused Albertsons to spend over two painstaking years attempting to

consummate the Merger. During that time, Albertsons suffered uncertainty

regarding its future dealings, employee flight, investor doubts, harm to its brand, and

Albertsons was forced to forgo other strategic projects as it attempted to salvage the

Merger.

COUNT III

(Breach of Contract, Merger Agreement § 6.3(e))

321. Albertsons repeats and incorporates all of the allegations set forth in the

preceding paragraphs as if they are fully set forth herein.

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 322. Albertsons and Kroger entered into the Merger Agreement.

323. The Merger Agreement is a binding contract.

324. Albertsons performed all its obligations under the Merger Agreement.

325. Section 6.3(e) of the Merger Agreement required Kroger to “take any

and all actions . . . to eliminate each and every impediment under any Antitrust Law

to close the” Merger before the October 9, 2024 Outside Date if a proceeding is

instituted or threatened challenging the Merger as violating any antitrust law.

326. One or more proceedings were threatened, and then instituted, that

challenged the Merger on the grounds that it violated the antitrust laws.

327. Through the actions and inactions described above, Kroger failed to

take any and all actions to eliminate each and every impediment under any antitrust

law to close the Merger before the October 9, 2024 Outside Date. Those actions

include, but are not limited to, Kroger’s inadequate 238-store offer, Kroger

mismanaging the process of identifying a divestiture buyer, Kroger’s inadequate

413-store offer, Kroger’s inadequate 510-store offer, Kroger’s inadequate 541-store

offer, Kroger declining C&S’s 650-store offer, Kroger entering into an insufficient

A&R APA, Kroger refusing to supplement the A&R APA, and generally, Kroger

failing to develop an adequate divestiture package in the more than two years since

the Merger Agreement was signed.

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 328. Through the actions and inactions described above, Kroger materially

breached the Merger Agreement.

329. Section 1.1 of the Merger Agreement defines “Willful Breach” as a

“material breach … that is the consequence of an act or omission by the breaching

[P]arty with the actual knowledge that the taking of such act (or, in the case of an

omission, failure to take such act) would cause or constitute such material breach,

regardless of whether breaching was the object of the act or failure to act.”

330. Kroger’s breach of Section 6.3(e) of the Merger Agreement constituted

a Willful Breach. Kroger had actual knowledge that its actions and inactions

violated the Merger Agreement and would make securing regulatory approval less

likely. Kroger chose to pursue its own economic interests by trying to hold on to as

many valuable assets as it could through the Merger and divestiture, instead of

striving to secure regulatory approval of the Merger, and despite clear and consistent

feedback from the FTC, the state Attorneys General, C&S, and Albertsons that its

approach was unlikely to lead to regulatory approval.

331. Kroger’s breach of the “any and all actions” provision of the Merger

Agreement has caused and continues to cause significant damages to Albertsons.

332. Kroger’s breach of the “any and all actions” provision of the Merger

Agreement has caused and continues to cause irreparable harm to Albertsons.

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 333. Kroger’s breach of the “any and all actions” provision of the Merger

Agreement caused Albertsons to spend over two painstaking years attempting to

consummate the Merger. During that time, Albertsons suffered uncertainty

regarding its future dealings, employee flight, investor doubts, harm to its brand, and

Albertsons was forced to forgo other strategic projects as it attempted to salvage the

Merger.

COUNT IV

(Breach of Contract, Merger Agreement § 6.3(b))

334. Albertsons repeats and incorporates all of the allegations set forth in the

preceding paragraphs as if they are fully set forth herein.

335. Albertsons and Kroger entered into the Merger Agreement.

336. The Merger Agreement is a binding contract.

337. Albertsons performed all its obligations under the Merger Agreement.

338. Section 6.3(b) of the Merger Agreement required Kroger to “work

together in good faith” with Albertsons to resolve any disagreements regarding

regulatory strategy.

339. Through the actions and inactions described above, Kroger failed to

“work together in good faith” with Albertsons to resolve any disagreements

regarding regulatory strategy.

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 340. Through the actions and inactions described above, Kroger materially

breached the Merger Agreement.

341. Section 1.1 of the Merger Agreement defines “Willful Breach” as a

“material breach … that is the consequence of an act or omission by the breaching

[P]arty with the actual knowledge that the taking of such act (or, in the case of an

omission, failure to take such act) would cause or constitute such material breach,

regardless of whether breaching was the object of the act or failure to act.”

342. Kroger’s breach of Section 6.3(b) of the Merger Agreement constituted

a Willful Breach. Kroger had actual knowledge that, by refusing to work together

in good faith with Albertsons, it was violating the Merger Agreement and making it

less likely that the Parties would secure regulatory approval of the Merger. Kroger

chose to pursue its own economic interests by trying to hold on to as many valuable

assets as it could through the Merger and divestiture process.

343. Kroger’s willful breach of the “good faith” provision of the Merger

Agreement has caused and continues to cause significant damages to Albertsons.

344. Kroger’s willful breach of the “good faith” provision of the Merger

Agreement has caused and continues to cause irreparable harm to Albertsons.

345. Kroger’s willful breach of the “good faith” provision of the Merger

Agreement caused Albertsons to spend over two painstaking years attempting to

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 consummate the Merger. During that time, Albertsons suffered uncertainty

regarding its future dealings, employee flight, investor doubts, harm to its brand, and

Albertsons was forced to forgo other strategic projects as it attempted to salvage the

Merger.

COUNT V

(Breach of the Implied Covenant of Good Faith and Fair Dealing)

346. Albertsons repeats and incorporates all of the allegations set forth in the

preceding paragraphs as if they are fully set forth herein.

347. Albertsons and Kroger entered into the Merger Agreement. The

Merger Agreement is a binding contract.

348. The purpose of the Merger Agreement was to benefit both Kroger and

Albertsons and to create a combined entity better positioned to compete against

rivals like Walmart, Costco, Target, and Amazon—not to give Kroger a competitive

advantage over Albertsons.

349. Pursuant to the implied covenant of good faith and fair dealing, Kroger

had an implied duty not to use its position under the Merger Agreement as the

putative buyer, and the party responsible for leading the development and

implementation of the strategy to obtain regulatory approval, to damage Albertsons.

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 Kroger was obligated to work in good faith toward regulatory approval for the

Merger.

350. Kroger willfully inflicted competitive harm on Albertsons as part of a

broader effort to prioritize Kroger’s financial interests at the expense of its express

and implied obligations to Albertsons under the Merger Agreement. Kroger dragged

out the regulatory process for more than two years, knowing that its regulatory

strategy put the Merger at risk. During that period, Albertsons suffered uncertainty

regarding its future dealings, employee flight, investor doubts, and harm to its brand,

and Albertsons was forced to forgo other strategic projects as it attempted to salvage

the Merger.

351. At the same time that Kroger was dilatory in its negotiations with

regulators, it was pushing full steam ahead on extensive integration efforts, including

review of critical business documents from Albertsons. Over the course of two-and-

a-half-years, Kroger gained unmatched insights into Albertsons’ core capabilities,

including how it operates its supply chain, merchandising, and contracting. Kroger

continued to seek that information up until the eve of the Oregon and Washington

decisions, giving itself a competitive advantage at Albertsons’ expense.

352. Kroger further sought to harm Albertsons as a competitor by

denigrating Albertsons in public communications regarding the Merger, including

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 Kroger’s comments during its December 5, 2024 earnings call that Kroger no longer

“need[ed]” Albertsons.

353. Kroger’s bad faith actions and inaction violated the covenant of good

faith and fair dealing that is implied in the Merger Agreement. Those actions and

omissions deprived Albertsons of the benefit of its bargain with Kroger because they

prevented the Merger Agreement from being consummated and prolonged the period

during which the Merger was under regulatory review.

PRAYER FOR RELIEF

WHEREFORE, and based on the foregoing, Albertsons respectfully requests

that the Court grant the following relief:

a. Enter judgment in Albertsons’ favor, finding that Kroger

willfully breached the Merger Agreement;

b. Award to Albertsons damages in an amount to be determined at

trial, including but not limited damages due to Albertsons’

stockholders pursuant to Section 9.5 of the Merger Agreement;

c. Award Albertsons all the attorney’s fees and costs it has incurred

and incurs in the future in this action;

d. Award Albertsons all available interest; and

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 e. Award all such other and further relief as this Court deems just

and appropriate.

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 /s/ Blake Rohrbacher
Blake Rohrbacher (#4750)
OF COUNSEL: Kyle H. Lachmund (#6842)
Sandy Xu (#6966)
Enu Mainigi Elizabeth J. Freud (#6803)
Craig D. Singer RICHARDS, LAYTON & FINGER, P.A.
Steven Pyser 920 North King Street
WILLIAMS & CONNOLLY LLP Wilmington, Delaware 19801
680 Maine Avenue, SW (302) 651-7700
Washington, DC 20024 [email protected]
(202) 434-5000 [email protected]
[email protected]
Philippe Z. Selendy [email protected]
Jennifer M. Selendy
David S. Flugman
SELENDY GAY PLLC
1290 Avenue of the Americas
New York, New York 10104
(212) 390-9000

Mike Cowie
DECHERT LLP
1900 K Street NW
Washington, DC 20006
(202) 261-3300

Dated: December 10, 2024 Attorneys for Plaintiff Albertsons Companies,

Inc.

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