Albertsons (ACI) sued prospective partner Kroger (KR) on Wednesday, a day after a district judge blocked Kroger’s $24.6 billion takeover of the smaller grocery peer.
Late Wednesday, Kroger announced a new $7.5 billion share repurchase program. Kroger stock popped almost 3% in extended trading. Albertsons stock also rose after closing lower.
The new buyback plan replaces Kroger’s existing $1 billion authorization, which was approved in September 2022, a news release said. It includes $5 billion in accelerated share repurchases. Many analysts and investors had anticipated a buyback announcement after the megamerger setback.
In an Oregon federal court on Tuesday, District Judge Adrienne Nelson found in favor of the U.S. Federal Trade Commission in a win for the Joe Biden administration. The agency had argued that the proposed acquisition violates antitrust law.
Albertsons filed suit on Wednesday, claiming Kroger had fallen short of requirements to exercise “best efforts” and take “any and all actions” needed to secure regulatory approval for the deal, Bloomberg reported. Separately, Albertsons said it had opted to terminate the deal after Tuesday’s court decision.
The two supermarket giants had agreed to merge more than two years ago. Kroger is the nation’s largest independent grocery supermarket chain.
Kroger Stock Buybacks Were Expected To Resume
Kroger is unlikely to appeal the ruling, Morgan Stanley analyst Simeon Gutman wrote in a note to clients. “The immediate future will likely contain a buyback / share repurchase announcement,” Gutman added. He called underlying metrics, including the outlook for food inflation, comps and EBIT growth as “fine, though not spectacular.” The analyst hiked his price target on Kroger stock by $4 to to $62, just around where shares traded on Wednesday.
In a Dec. 7 note prior to the ruling, CFRA Research analyst Arun Sundaram agreed: “If a merger doesn’t go through, then we think Kroger could accelerate share buybacks.” Last month, Sundaram told Grocery Dive that the then-pending Albertsons merger was a distraction from Kroger’s actual solid operations. “If you’re looking at how the company is just doing, (Kroger) stock should be, in our opinion, much higher than it is today,” he said.
Grocery giant Kroger paused share buybacks in October 2022, aiming to use the additional cash to reduce its debt ahead of the biggest supermarket merger in U.S. history.
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KR Stock Rises In Buy Zone, Albertsons Bounces Off Low
Shares of Kroger gained 1% in Wednesday’s regular stock market action, making a new high and almost out of range from a 58.34 buy point. Kroger stock popped 5.1% on the merger ruling the previous day, rebounding from its 50-day moving average and returning to the buy zone.
On Wednesday, Albertson’s stock reversed to close down 1.5%. Shares plunged to a 52-week low the prior session.
Kroger, Walmart (WMT), Costco (COST) and Amazon.com (AMZN) are among the nation’s biggest grocers.
Had the Albertsons deal proceeded, Kroger would have owned about 5,000 stores nationwide. The companies argued at trial that they needed to merge to better compete against Walmart, Costco and Amazon.
Kroger stock jumped after the Nov. 5 election on merger hopes after Donald Trump’s win.
Please follow Aparna Narayanan on X @IBD_Aparna for more coverage.
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