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With merger off, Kroger doubles down on new stores, remodels; restarting buybacks

Kroger
The Kroger Co. has terminated its merger agreement with Albertsons.

The Kroger Co. is resuming stock buyback and will pursue a variety of growth priorites after abandoning its acqusition of Albertsons.

On Thursday, Kroger said it has terminated its merger agreement with Albertsons after the U.S. District Court for the District of Oregon granted the Federal Trade Commission's request for a preliminary injunction to block the proposed deal.  

“After reviewing options, the company determined it is no longer in its best interests to pursue the merger,” Kroger stated in a release.

On Wednesday, Albertsons said it was ending the merger agreement and suing Kroger for "billions" in damages, claiming that the company failed to exercise its “best efforts” to secure regulatory approval of the deal.  Kroger issued a statement in which it called Albertsons' claims "baseless and without merit."

With the merger off, Kroger said it is moving forward from a position of strength, and plans to grow its alternative profit businesses and generate increased cash flows. 

“The strength of our balance sheet and sustainability of our model allows us to pursue a variety of growth opportunities, including further investment in our store network through new stores and remodels, which will be an important part of our 8 – 11% TSR [total shareholder return] model over time," said Rodney McMullen, Kroger's chairman and CEO.

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McMullen noted that Kroger has an  “extraordinary track record” of investing in America and that it willcontinue to do so.

The company said that its ongoing investments in America include:

•$5 billion in lower prices since 2003;

•$2.4 billion in incremental wage increases on top of industry-leading benefits since 2018, a 38% increase in average hourly rate, while growing opportunities for a largely unionized grocery workforce;

•$3.6 to $3.8 billion in annual capital investments to build new and remodel stores, food processing and other facilities, improve the customer experience and create additional job opportunities; and

•$2.3 billion to support local communities through charitable giving since 2017, including $1.5 billion to feed hungry families

Share Repurchase Program

Kroger will resume share repurchases after a more than two-year pause, with the board approving a new share repurchase program authorizing the repurchase of up to $7.5 billion of common stock. The new repurchase authorization replaces the company’s existing $1 billion authorization, which was approved in September 2022.  

Kroger intends to enter an accelerated share repurchase agreement for the repurchase of approximately $5 billion of common stock.

"Our strong balance sheet and free cash flows position us to deliver on our commitment to grow the business and return capital to shareholders, maintaining capacity to invest in lower prices and higher associate wages," McMullen said.

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