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By Jenna Greene

March 28 (Reuters) - Breakups are rarely easy, but the

acrimony over a busted blockbuster deal can rival

finger-pointing by the bitterest of star-crossed lovers.

Consider the blame game unfolding now between Kroger ( KR ) and

Albertsons ( ACI ) in Delaware Chancery Court, where each grocery chain

is attempting to fault the other for the failure of their $25

billion merger, which was blocked by judges in both federal and

state courts in December.

To hear Albertsons ( ACI ) tell it in its Chancery Court lawsuit seeking

billions of dollars, Kroger ( KR ) had "a classic case of buyer's

remorse" after negative reaction to the merger by investors,

workers and politicians, as well as falling post-pandemic

profits. As a result, Kroger ( KR ) allegedly failed to take "any and

all actions" possible to win antitrust approval for the deal, as

required by the merger agreement.

In a countersuit made public on Tuesday, Kroger ( KR ) says Albertsons ( ACI )

"secretly coordinated" with C&S Wholesale Grocers, which was set

to buy hundreds of grocery stores that the parties planned to

divest, in a "surreptitious scheme" to pursue their own

regulatory strategy.

Kroger ( KR ) is seeking unspecified damages from Albertsons ( ACI ) for

willfully breaching the merger agreement.

Also jumping in the fray, C&S on March 14 sued Kroger ( KR ) in

Delaware Superior Court seeking payment of a $125 million

termination fee it says it's entitled to under its agreement

with Kroger ( KR ).

This isn't the first time companies in a merger gone wrong

have sued each other in Delaware, though the cases tend to be

highly fact-specific. To misquote Tolstoy, every failed merger

fails in its own way.

Still, a 2020 decision by Vice Chancellor Travis Laster holding

that Cigna ( CI ) breached its obligation to try to close a $54 billion

merger with Anthem - but that the merger would probably have

been enjoined anyway, so Anthem wasn't entitled to recover

damages - will likely come into play in allocating the burden of

proof for the thwarted grocery union.

A Kroger ( KR ) spokesperson declined comment.

Albertsons ( ACI ) in a statement said it was "steadfastly committed

to the success of the combination," but that Kroger ( KR ) "did not

hold up its end of the bargain."

A C&S spokesperson said via email that the New

Hampshire-based company "worked tirelessly in support of the

merger and divestiture, including communicating with both Kroger ( KR )

and Albertsons ( ACI ) executives."

Announced in 2022, the proposed merger would have been the

largest-ever supermarket combination.

Kroger ( KR ) - operating stores under regional names including

Fry's, Harris Teeter and King Soopers - and Albertsons ( ACI ) - whose

regional banners include Jewel-Osco, Safeway and Vons - together

have about 5,000 supermarkets across 48 states.

Going into the deal, Kroger ( KR ) anticipated it would have to

sell off stores in locations where the two chains competed

head-to-head to appease the Federal Trade Commission and state

regulators. Per the merger agreement, Kroger ( KR ) agreed to divest up

to 650 properties and lined up C&S as the buyer.

Like many antitrust fights, market definition was key.

Kroger ( KR ) argued its grocery competitors nowadays go beyond

traditional supermarkets to include retail behemoths like

Walmart ( WMT ), Costco and Amazon. If Kroger ( KR ) could convince regulators

to adopt such a broad view of the competitive landscape, perhaps

divesting a few hundred stores might assuage their concerns that

the merger would lead to higher prices for consumers.

At its first meeting with the FTC, Kroger ( KR ) proposed shedding

just 238 stores, Albertsons ( ACI ) said. Kroger ( KR ) subsequently offered to

divest 413 stores to C&S, later upping the total to 541, then

579 outlets.

Albertsons ( ACI ) argues this was the wrong approach, calling

Kroger's ( KR ) position "indefensible." According to Albertsons ( ACI ),

Kroger ( KR ) "squandered its credibility with regulators" by refusing

to propose a viable divestment package, its lawyers from

Williams & Connolly; Selendy Gay; Dechert; and Richards, Layton

& Finger wrote in the Delaware complaint.

Albertsons ( ACI ) also says Kroger ( KR ) shut it out of the "disorganized

protracted" process of selecting C&S as the purchaser, and

that picking a wholesaler with a limited track record of running

retail outlets "introduced new obstacles" for regulatory

approval.

The FTC along with attorneys general from eight states and

the District of Columbia sued to block the deal in 2024, while

Colorado and Washington filed suits on their own.

Albertsons ( ACI ) says it's owed a $600 million contractual

break-up fee since the merger failed to close by the outside

date set in the agreement, plus additional damages.

Under the terms of the merger agreement, Kroger ( KR ) was in

charge of antitrust regulatory strategy, while Albertsons ( ACI ) was

obliged to cooperate and support the effort. Kroger ( KR ) faults

Albertsons ( ACI ) for allegedly engaging in "secret communications"

with C&S, urging it to tell regulators it needed more stores

from Kroger ( KR ) to compete effectively post-merger, Kroger ( KR ) counsel

from Weil Gotshal & Manges and Ross Aronstam & Moritz wrote.

Offering to divest more assets is of course one way to

mitigate antitrust concerns, but here, Kroger ( KR ) said Albertsons' ( ACI )

rogue strategy backfired, making regulators believe C&S was "a

weak buyer that would not be an effective competitor regardless

of the number of stores it received."

Kroger ( KR ) also alleges Albertsons ( ACI ) manufactured a "faux

litigation record" of "lawyer-crafted letters" so it would be

ready to sue its would-be partner for billions of dollars if the

merger failed to close. To bolster the allegations, Kroger ( KR ) notes

that shortly after court decisions enjoining the merger were

issued, Albertsons ( ACI ) moved to terminate the deal and sued Kroger ( KR )

in Delaware for damages.

"No doubt capable counsel represents Albertsons ( ACI ), but even

they could not draft a 140-page complaint in a few hours,"

Kroger ( KR ) said.

Was having a complaint ready to go nefarious? Or just

advance planning?

The Delaware court will decide this and other questions in

weighing whether the union was ever meant to be, with a possible

trial late next year or early 2027.