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Election Lawsuits and Supermarket Deal Trial · Bloomberg Law

0:02
Speaker 1: You're listening to Bloomberg Law with June Grosso from Bloomberg Radio.
0:10
Speaker 2: President Trump took credit for the Justice Department filing a
0:13
Speaker 2: lawsuit against Alaska to stop election officials from certifying the
0:18
Speaker 2: results of a U.S. Senate contest only if the Republican
0:22
Speaker 2: candidate loses. The lawsuit marks a major escalation in the
0:26
Speaker 2: administration's attempts to get involved in the midterm elections. The
0:31
Speaker 2: Justice Department has also sued to force California and other
0:35
Speaker 2: states to segregate the ballots of suspected non-citizens. That effort
0:40
Speaker 2: led to an emergency hearing in the Ninth Circuit Court
0:43
Speaker 2: of Appeals on Sunday. Joining me is elections law expert
0:46
Speaker 2: Richard Brafault, a professor at Columbia Law School. Rich, the
0:50
Speaker 2: Justice Department is filing lawsuits to intervene even before Election Day.
0:56
Speaker 2: The Attorney General says they're not, they're just trying to
0:58
Speaker 2: put guardrails in place. But what's really happening here?
1:03
Speaker 3: In some ways, this is a continuation of Trump's efforts
1:06
Speaker 3: that go back to the beginning of this term to
1:08
Speaker 3: try and, in some sense, take over the electoral system,
1:11
Speaker 3: whether it was through orders to the Postal Service not
1:14
Speaker 3: to allow a certain mail to be picked up or
1:16
Speaker 3: efforts to get the SAVE Act passed by Congress or
1:18
Speaker 3: then do it through executive orders or talk about sending
1:22
Speaker 3: observers to into local polling places. The Justice Department has
1:26
Speaker 3: announced they're sending observers to a county in Colorado where
1:28
Speaker 3: there's a hotly contested congressional election. They sent observers into
1:32
Speaker 3: Wyoming during a primary. This is the latest effort. It's
1:35
Speaker 3: not quite clear what the goal here is, whether it's
1:37
Speaker 3: some kind of preemptive intimidation or it's laying the groundwork
1:41
Speaker 3: for post-election challenges to the results. Because the two big actions,
1:45
Speaker 3: the two lawsuits that the administration has brought, one involving
1:48
Speaker 3: California and one involving Alaska, are somewhere between pretty frivolous
1:53
Speaker 3: and totally frivolous, and are almost certainly not going to
1:56
Speaker 3: succeed as lawsuits, but they do succeed as press releases
2:00
Speaker 3: and may be setting a foundation for post-election challenges.
2:03
Speaker 2: Let's start with the Justice Department suing to try to
2:06
Speaker 2: get California to segregate the ballots of people they claim
2:12
Speaker 2: are non-citizens.
2:14
Speaker 3: Maybe about a week or so ago, October 15th, the
2:16
Speaker 3: administration sent, I think, letters to California and various California
2:21
Speaker 3: counties saying, we think, we have reason to believe, we
2:24
Speaker 3: suspect that there are something like 10,000 non-citizens who are
2:29
Speaker 3: registered to vote and have requested mail-in ballots. And we
2:34
Speaker 3: want you to segregate them so that when they come in,
2:37
Speaker 3: you don't count them. And they filed this lawsuit. The
2:40
Speaker 3: state says, no, show us your information, show us your data.
2:43
Speaker 3: The few that they've actually looked at, a lot of
2:45
Speaker 3: these people are either citizens or are not registered to vote.
2:48
Speaker 3: And so the district court set a hearing date for
2:51
Speaker 3: actually this coming Tuesday to look at the government's information.
2:54
Speaker 3: The Justice Department thought that wasn't fast enough because, in fact,
2:57
Speaker 3: absentee ballots are being cast in California and the envelopes
3:00
Speaker 3: are being opened and ballots are being collected. So they
3:02
Speaker 3: decided to jump the district court and go directly to
3:05
Speaker 3: the Court of Appeals in California, the Ninth Circuit, with
3:09
Speaker 3: something that they were calling an appeal. But of course,
3:12
Speaker 3: there was no lower court decision to appeal. And there
3:14
Speaker 3: was an oral argument on that before the Ninth Circuit
3:17
Speaker 3: over the weekend on Sunday. And at least the early
3:20
Speaker 3: reports on that seemed to suggest the administration is not
3:22
Speaker 3: likely to win. It wasn't clear what their claim was,
3:25
Speaker 3: that they have any cause of action or they had
3:27
Speaker 3: any right to be in court, because there really is
3:30
Speaker 3: no federal law that gives the Justice Department the right
3:33
Speaker 3: to go into court and seek to have ballots not counted.
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Speaker 3: There is just no such cause of action that exists
3:41
Speaker 3: in federal law. They were claiming they were relying on
3:43
Speaker 3: the part of federal law that makes it illegal for
3:46
Speaker 3: a non-citizen to vote. But there's no federal law that
3:49
Speaker 3: gives the Justice Department the authority to go to court
3:52
Speaker 3: in advance claiming that some people are illegally registered. and
3:58
Speaker 3: to force the state or the counties to segregate a
4:01
Speaker 3: bunch of ballots. So there's a lack of authority. There's
4:04
Speaker 3: also the so-called Purcell principle, which is they're basically saying
4:07
Speaker 3: it's on the eve of the election and they want
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Speaker 3: to get 10,000 ballots not counted. There's also the federal
4:12
Speaker 3: law that says you're not supposed to do mass changes
4:15
Speaker 3: in eligible voters within 90 days of the election. There
4:18
Speaker 3: are a lot of problems. And so... At this point,
4:21
Speaker 3: we haven't yet heard from the Ninth Circuit. The oral
4:23
Speaker 3: argument was yesterday. And we don't know what's going to
4:26
Speaker 3: happen here. But it lays the foundation for them to
4:28
Speaker 3: say there are non-citizens voting in California, even though there
4:32
Speaker 3: is no evidence of that.
4:33
Speaker 2: So one of the judges, a Trump appointee, said, how
4:36
Speaker 2: do we have jurisdiction when the lower court said it
4:38
Speaker 2: would rule expeditiously and it hasn't done so yet? Do
4:42
Speaker 2: they have jurisdiction? As you said, it's an appeal, but
4:45
Speaker 2: it's not really an appeal.
4:46
Speaker 3: That's right. They're claiming that the fact that the lower
4:49
Speaker 3: court hasn't ruled yet. is effectively a denial, that they're
4:53
Speaker 3: appealing that denial. But of course, the lower court scheduled
4:56
Speaker 3: a hearing with like six days after the administration filed
5:01
Speaker 3: its claim. So there's no evidence that the lower court
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Speaker 3: is stalling. It's a complicated case. The administration actually show
5:06
Speaker 3: evidence that these 10,000 people actually are both non-citizens and
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Speaker 3: are registered to vote. And I guess a third had
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Speaker 3: requested absentee ballots, had requested bail-in ballots. There are facts
5:17
Speaker 3: in dispute here. And the lower court, the district court
5:19
Speaker 3: did say a hearing date within a short time after
5:22
Speaker 3: the complaint was filed. So there's no real evidence that
5:26
Speaker 3: they're delaying. But that's the administration's argument is that the
5:30
Speaker 3: lower court has delayed so much that it's effectively a
5:33
Speaker 3: denial and therefore they can appeal. That's the argument.
5:37
Speaker 2: Another judge questioned the numbers, the 20,000, and asked what
5:41
Speaker 2: process the federal government had used to create this, quote,
5:45
Speaker 2: supposedly reliable list. He said the list started as 190,000
5:50
Speaker 2: non-citizens and now it's down to 20,000. These numbers always
5:55
Speaker 2: seem to be off. Where are they getting them from?
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Speaker 3: They presumably have lists that some organizations are generating. But
6:02
Speaker 3: everyone knows that a lot of the lists of people
6:04
Speaker 3: who are citizens or rich, they're very sketchy. And there's
6:07
Speaker 3: no comprehensive list of citizens or of non-citizens. So we
6:10
Speaker 3: don't know where they're getting from. They have not yet
6:12
Speaker 3: in a court before a judge and with adversaries, you know,
6:16
Speaker 3: cross-examining them, ever been able to show that there are
6:20
Speaker 3: these large numbers of non-citizens voting. They had given Nevada
6:23
Speaker 3: a list of like 17,000. In the end, it turns
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Speaker 3: out there was no one. The county clerks in the
6:28
Speaker 3: various Nevada counties went to work, and they found that
6:30
Speaker 3: those people, they were either citizens or they were not
6:33
Speaker 3: registered to vote. And so this big effort to get
6:36
Speaker 3: Nevada to take non-citizens off the rolls turned into zero. Now,
6:40
Speaker 3: it is almost certainly true that there were some non-citizens
6:43
Speaker 3: who were registered to vote. And sometimes, Somebody with a
6:45
Speaker 3: green card thinks they're a citizen. Sometimes a voter registrar
6:48
Speaker 3: thinks that someone with a green card is a citizen.
6:50
Speaker 3: But the numbers are minuscule and are certainly, there's been
6:53
Speaker 3: no evidence in any of these claims that the numbers,
6:56
Speaker 3: not only are they not in the 10,000s or the 1,000s,
6:59
Speaker 3: we're probably talking about the single digits.
7:01
Speaker 2: One of the judges, another Trump appointee, asked how the
7:05
Speaker 2: hypothetical ballots from non-citizens could ever be clawed back once
7:10
Speaker 2: a vote is cast because the ballot becomes anonymous. I mean,
7:14
Speaker 2: is he right?
7:15
Speaker 3: That is correct, actually. Once the ballots are received, they
7:19
Speaker 3: are opened and the outer envelope is checked to make
7:22
Speaker 3: sure the ballot came from a registered voter. That's the
7:25
Speaker 3: check that election officers are supposed to do to compare
7:27
Speaker 3: the signature on the outer envelope with what they have
7:29
Speaker 3: on file. So it has come from a registered voter.
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Speaker 3: At that point, the ballot is separated from the envelope
7:34
Speaker 3: to maintain the secret ballot and the ballots are all combined.
7:37
Speaker 3: What the government is asking for is to have the
7:40
Speaker 3: ballots from the people who they contend might be, or
7:43
Speaker 3: they have reason to believe or they suspect, are non-citizens,
7:46
Speaker 3: that they'd be segregated. But it is true. Once the
7:49
Speaker 3: ballot envelope has been opened and it's been verified that
7:53
Speaker 3: the person who cast the ballot is a registered voter,
7:56
Speaker 3: the ballots are all combined, consistent with the idea of
7:59
Speaker 3: a secret ballot.
8:00
Speaker 2: Let's turn to the Justice Department's suit against Alaska over
8:04
Speaker 2: the Senate race there. And this is the suit that
8:08
Speaker 2: Trump said he directed the Justice Department to bring.
8:11
Speaker 3: That one is even more preposterous because there is truly
8:14
Speaker 3: no basis for a federal intervention. In the California case,
8:19
Speaker 3: they are saying there is a federal law that makes
8:21
Speaker 3: it a crime for a non-citizen to vote. There's no
8:24
Speaker 3: authority for the Justice Department to go to court to
8:27
Speaker 3: order the states to do something. But at least there's
8:30
Speaker 3: an underlying law. There is no law at issue in
8:33
Speaker 3: the Alaska case. So in Alaska, they've gone to court
8:36
Speaker 3: claiming that because there is a, I mean, as you know,
8:39
Speaker 3: the incumbent senator in Alaska is named Daniel Sullivan, and
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Speaker 3: he's running for re-election, and Mary Peltola is the Democrat
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Speaker 3: who's challenging him. There's also on the ballot another man
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Speaker 3: named Dan Sullivan, and government is claiming that this is
8:52
Speaker 3: going to create some kind of confusion that would taint
8:55
Speaker 3: the result if Mary Peltola, the Democrat, won. And the
8:59
Speaker 3: story is when the other Dan Sullivan, you know, filed
9:01
Speaker 3: to go on the ballot, initially the local elections officer
9:05
Speaker 3: in Alaska said, no, you can't. It's confusing. And we
9:08
Speaker 3: think this might be not in good faith. But the
9:10
Speaker 3: Alaska courts going up to the Alaska Supreme Court said, no,
9:15
Speaker 3: he satisfied the requirements. He has to get on the ballot.
9:17
Speaker 3: And indeed, he was on the ballot in the first
9:20
Speaker 3: round of the voting in Alaska. Alaska uses ranked choice voting.
9:23
Speaker 3: A whole bunch of candidates get on the first round.
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Speaker 3: And then the top four make it to the next round.
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Speaker 3: And the second Dan Sullivan actually came in third of
9:31
Speaker 3: the top four. He got like 2% of the vote.
9:33
Speaker 3: Now the administration has come in at this very late
9:36
Speaker 3: hour and said, well, that's inherently confusing. He's going to
9:39
Speaker 3: take votes away from our Dan Sullivan, the Republican Dan Sullivan.
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Speaker 3: And we think that's bad. And the remedy they asked
9:46
Speaker 3: for is intervention in case their guy loses. They're not
9:50
Speaker 3: trying to set aside the election. They're only going to
9:52
Speaker 3: want to set aside the election if their guy loses
9:55
Speaker 3: and if his loss is such that, you know, the
9:57
Speaker 3: number of votes that went to the other Dan Sullivan
10:00
Speaker 3: is greater than their Dan Sullivan's margin of defeat against
10:03
Speaker 3: the Democrat Mary Peltola. That's sort of what they're looking
10:06
Speaker 3: for is to some sense, how courts say that, that
10:09
Speaker 3: if the election goes the way where Peltola wins, but
10:12
Speaker 3: by a narrow margin, something's supposed to happen. It's not
10:16
Speaker 3: quite clear what's supposed to happen. It's supposed to not
10:18
Speaker 3: certify the results so they can check in case there
10:20
Speaker 3: was fraud or that in case the voters were misled.
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Speaker 3: There is no basis in federal law for them to
10:26
Speaker 3: bring this claim. They are relying entirely on the preamble
10:30
Speaker 3: to the National Voter Registration Act. And the preamble says
10:33
Speaker 3: something like election integrity is important. And that's their basis.
10:36
Speaker 3: There's no substantive law. There's nothing that authorizes this lawsuit.
10:40
Speaker 3: And to the extent that the Justice Department has Some
10:43
Speaker 3: authorities under the NVRA, the National Voter Registration Act, that's
10:46
Speaker 3: the preamble that they're using. That's about voter registration. This
10:50
Speaker 3: case has nothing to do with voter registration. So they
10:53
Speaker 3: have absolutely no basis in law for being able to
10:57
Speaker 3: bring this case. And it's hard to imagine that anything
11:00
Speaker 3: will happen, except they've now laid the foundation for an
11:04
Speaker 3: argument afterwards that if their guy loses, it was through
11:08
Speaker 3: voter deception. The thing that makes this particularly odd is
11:11
Speaker 3: it is Alaska, and Alaska does use ranked choice voting.
11:14
Speaker 3: So if anybody really wants to vote for Dan Sullivan,
11:17
Speaker 3: and they're not sure which one to vote for, they
11:20
Speaker 3: can rank one of them in first place and the
11:22
Speaker 3: other one in second place. And unless Mary Peltola actually
11:26
Speaker 3: wins outright, in which case it didn't matter how many
11:28
Speaker 3: Dan Sullivans there were on the ballot, if it goes
11:30
Speaker 3: to the ranked choice process, the Dan Sullivans will get
11:33
Speaker 3: added together, in effect. If somebody who voted for the
11:35
Speaker 3: wrong Dan Sullivan makes the right to Dan Sullivan as
11:38
Speaker 3: second choice, because that person wasn't sure which was the
11:40
Speaker 3: right one. Well, they combined. Unless somebody votes for the
11:43
Speaker 3: Dan Sullivan, makes somebody else their second choice, like Peltoa,
11:48
Speaker 3: there's not even any danger of any harm. And apparently,
11:50
Speaker 3: this has gotten a lot of attention in Alaska. I mean,
11:53
Speaker 3: people know that there are two Dan Sullivans. And they're
11:56
Speaker 3: listed separately on the ballot. They use different middle initials.
11:59
Speaker 3: And the incumbent Dan Sullivan, actually, it says incumbent and
12:03
Speaker 3: Republican next to it. And the other Dan Sullivan has
12:06
Speaker 3: nothing next to it.
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Speaker 2: So they're setting it up because this is a very
12:09
Speaker 2: close race. The Senate may depend on this.
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Speaker 3: Right. They're laying a foundation for challenging the result. This
12:16
Speaker 3: is basically a press release. It's so specious, so frivolous
12:20
Speaker 3: that it's just hard to imagine. There is no legal
12:23
Speaker 3: foundation for the Justice Department to go into court to
12:27
Speaker 3: seek this result, let alone is there any basis for
12:31
Speaker 3: finding that there's a problem here. It's incredibly frivolous. The
12:35
Speaker 3: Alaska Supreme Court held that the second Dan Sullivan has
12:39
Speaker 3: a right to be on the ballot. And the decision
12:41
Speaker 3: of who gets on the ballot is a state decision.
12:43
Speaker 3: I mean, so far, just about everything they've tried has failed.
12:47
Speaker 3: You know, they weren't able to force that rule through them,
12:50
Speaker 3: which the post office wouldn't count ballots that they didn't
12:53
Speaker 3: want them to count. They didn't get the SAVE Act through.
12:55
Speaker 3: 26 states have resisted their effort to get their state
12:58
Speaker 3: voting rolls And those states have prevailed in court. It
13:02
Speaker 3: really is about creating an atmosphere of either intimidating voters
13:08
Speaker 3: or laying a kind of a foundation for post-election challenges
13:12
Speaker 3: to the legitimacy of the outcome.
13:14
Speaker 2: Thanks so much, Rich. That's Professor Richard Brafault of Columbia
13:17
Speaker 2: Law School. Coming up next on the Bloomberg Law Show,
13:21
Speaker 2: supermarket wars in court. I'm June Grosso, and you're listening
13:25
Speaker 2: to Bloomberg. It would have been the largest U.S. grocery
13:30
Speaker 2: chain merger in history. Now it could turn out to
13:33
Speaker 2: be a very expensive breakup. Kroger's $ 24. 6 billion deal to
13:39
Speaker 2: buy Albertsons was scrapped after a federal court blocked it
13:43
Speaker 2: in December of 2024, siding with the Federal Trade Commission,
13:47
Speaker 2: who said that combining more than 4,000 stores would leave
13:51
Speaker 2: the grocery giants with too much market power. But that
13:55
Speaker 2: wasn't the end of it. They're back in trial against
13:59
Speaker 2: each other. Albertsons wants to get not only the $ 600
14:03
Speaker 2: million termination fee, but also more than $ 8 billion for
14:07
Speaker 2: lost shareholder merger premiums and taxes. It's week two of
14:12
Speaker 2: the trial before a judge in Chancery Court in Delaware,
14:16
Speaker 2: and there's been a lot of finger-pointing going on. Joining
14:19
Speaker 2: me is antitrust expert Harry First, a professor at NYU
14:23
Speaker 2: Law School. Harry, tell us about the deal that failed.
14:27
Speaker 1: My view is, what were they thinking for this whole thing?
14:31
Speaker 1: What were they thinking? So this was announced in 2022
14:35
Speaker 1: and done in 2024 in litigation. Litigation both in federal
14:41
Speaker 1: court and in state court. Very unusual litigation for state court,
14:45
Speaker 1: another matter. So two years they spent on this case
14:49
Speaker 1: and then in litigation. Huge merger. First and second largest
14:54
Speaker 1: supermarket chain's in the United States, $ 24 billion merger. That's
14:59
Speaker 1: not including Walmart. It's one of the market definitions. But
15:03
Speaker 1: if you put Walmart in and Costco, both of which
15:06
Speaker 1: legally the judge didn't include eventually, but if you put
15:10
Speaker 1: them in, it's still the second and fourth largest change
15:13
Speaker 1: of supermarkets, of food sellers in the United States. So
15:17
Speaker 1: this is huge. 5,000 stores, 4,000 pharmacies, 710,000 store associates,
15:26
Speaker 1: a huge merger. And they propose this to an administration
15:32
Speaker 1: that has merger guidelines that has lowered the thresholds for
15:37
Speaker 1: concentration and mergers, more aggressive on mergers, that has taken
15:41
Speaker 1: a position saying, you know, the days of making deals
15:45
Speaker 1: first are out. You We want to slow down the
15:52
Speaker 1: merger wave, and that means we're going to litigate more, right?
15:57
Speaker 1: And then you come along with a merger of huge proportions,
16:02
Speaker 1: and in what industry? Food. Now, this is at a
16:06
Speaker 1: time when prices are going up. I mean, whatever Democrats think,
16:11
Speaker 1: prices were going up. Crises of food. It's like the core.
16:16
Speaker 1: And you say, OK, we'd like to merge. What happens
16:19
Speaker 1: in a merger? What's the theory of mergers? You get
16:22
Speaker 1: two competitors together. What do they do? They raise prices. So,
16:27
Speaker 1: you know, what are they thinking? They really think this
16:30
Speaker 1: is going to go through? And put aside even the
16:34
Speaker 1: federal government, the states are up at arms. So you
16:38
Speaker 1: have Washington state, you have Colorado suing in state court.
16:42
Speaker 1: Never happens. to stop this merger. My question was, why
16:46
Speaker 1: did it take the FTC so long to oppose it?
16:48
Speaker 1: What was the possible case for it? So, you know,
16:52
Speaker 1: in Kroger's brief, they wrote, but there was nothing they
16:57
Speaker 1: could have done to have made a difference to settle
17:00
Speaker 1: the case. Really? And they wrote, regulators, including the FTC
17:05
Speaker 1: under Lina Khan, were entrenched in a fundamentally different view
17:09
Speaker 1: of the product market that excluded Amazon, Costco, and others.
17:12
Speaker 1: In other words, Lawyers for Kroger, they're now being sued.
17:16
Speaker 1: We'll get to the suit in a second, are saying
17:18
Speaker 1: Albertson said we didn't make our best efforts to settle
17:21
Speaker 1: this case and not have litigation, which we lost. There
17:25
Speaker 1: was nothing we could have done. Seriously? Who went into
17:29
Speaker 1: the merger and spent a billion dollars, they say, on
17:33
Speaker 1: a merger that they said there was nothing we could
17:36
Speaker 1: have done? And then the testimony in court from Kroger's,
17:41
Speaker 1: I think he's still the current CEO, that the merger
17:44
Speaker 1: was doomed from the start because of Lena Kahn, the
17:49
Speaker 1: chair of the FTC's hostility to making deals. Well, you know,
17:54
Speaker 1: it wasn't like this was a secret. It wasn't, you know,
17:58
Speaker 1: she wrote it in lemon juice and it disappeared. Everybody
18:02
Speaker 1: knew it. Everybody knew it.
18:04
Speaker 2: Well, maybe now we at least know what they weren't thinking.
18:07
Speaker 2: And it didn't take Albertsons long to sue.
18:10
Speaker 1: The day after federal judge and the state judge in
18:14
Speaker 1: Washington say the merger is illegal, the day after Albertson's
18:19
Speaker 1: filed suit in court in Delaware, Chancery Court in Delaware,
18:23
Speaker 1: which concerns corporate matters, has jurisdiction over corporate matters, filed
18:27
Speaker 1: suit against Kroger for the failure of the deal. A
18:32
Speaker 1: deal which, you know, could it have possibly happened? I
18:36
Speaker 1: don't see how, but they're suing now saying that Kroger
18:39
Speaker 1: didn't make its best efforts to come up with some
18:43
Speaker 1: divestiture of stores that would have satisfied both the federal
18:49
Speaker 1: government and the state government. And they asked for nine, roughly,
18:53
Speaker 1: I guess a little more than $ 9 billion in damages
18:56
Speaker 1: on a $ 24 billion merger. So that's what they're in
19:01
Speaker 1: court now fighting about, whether Kroger made best efforts. And
19:06
Speaker 1: Kroger is saying to counter that, not only did we
19:09
Speaker 1: make our best efforts, you helped to scuttle the deal.
19:12
Speaker 1: So we don't owe you this reverse breakup fee of
19:17
Speaker 1: $ 600 million. So we don't owe you anything. Not only
19:20
Speaker 1: don't we owe you the $ 9 billion, we don't owe
19:23
Speaker 1: you anything under the merger agreement.
19:25
Speaker 2: Isn't spending a billion dollars pursuing a deal, isn't that
19:29
Speaker 2: good faith enough?
19:30
Speaker 3: I don't know.
19:32
Speaker 1: You might say that's a good marker. You know, the
19:36
Speaker 1: specifics of who negotiated what, when. I mean, the deal
19:40
Speaker 1: itself that was on the table, which the district court
19:44
Speaker 1: judge eventually said was not adequate relief, and what the
19:47
Speaker 1: FTC didn't accept, which was divestiture to CNS, which runs
19:52
Speaker 1: Piggly Wiggly. So, yes, you might think a marker of
19:56
Speaker 1: good faith is we spent a lot of money on this.
19:59
Speaker 1: A billion dollars, they say. Whether true or not, I
20:01
Speaker 1: have no idea. But they certainly spent a lot of
20:04
Speaker 1: money on it, as did Albertson spend a lot of
20:07
Speaker 1: money on it, I assumed. Because they had antitrust counsel
20:10
Speaker 1: as well looking at this before they signed the deal.
20:14
Speaker 1: So yes, you might say that shows good faith. Or
20:17
Speaker 1: on the other hand, you might say that shareholders ought
20:21
Speaker 1: to be suing them for wasting a billion dollars on
20:25
Speaker 1: this litigation. And that that was a waste of assets
20:29
Speaker 1: and that they're subject to a shareholder's derivative suit. I'm
20:33
Speaker 1: waiting for that one.
20:34
Speaker 2: Also, the number of stores that Kroger agreed to divest
20:38
Speaker 2: was stated in the deal, more than 600 stores. So
20:43
Speaker 2: why then is Albertson's complaining about the number of stores
20:47
Speaker 2: they agreed to divest? Wasn't that set out in the
20:50
Speaker 2: merger agreement?
20:51
Speaker 1: Right. So Kroger, as I understand it, Albertson says, well,
20:55
Speaker 1: first they came in with a low ball bid of
20:58
Speaker 1: 200 some, you know, and that really annoyed the staff
21:01
Speaker 1: of the Federal Trade Commission. So, you know, was that
21:05
Speaker 1: I don't know the facts of it. But if you're
21:07
Speaker 1: involved in negotiations, you don't expect the first bid to
21:10
Speaker 1: be the best one. You expect it to be the
21:13
Speaker 1: worst one. So I don't know. Maybe it did annoy
21:17
Speaker 1: people there. Maybe it didn't. You know, in doing sort
21:21
Speaker 1: of old time supermarket deals where you say, I'll pick
21:25
Speaker 1: this one here, I'll pick this one there. This is
21:28
Speaker 1: called a negotiation. So you don't come in with your
21:31
Speaker 1: best offer. Hard to know how to evaluate that. So
21:33
Speaker 1: they eventually got it up to close to what was
21:37
Speaker 1: mentioned as they could be in compliance with what their
21:43
Speaker 1: obligations were under the merger agreement if they agreed to
21:48
Speaker 1: divest up to 650 stores. Now, this is where the
21:53
Speaker 1: two of them operate 5,000 stores. And I don't know
21:58
Speaker 1: in the end how many. They were pretty close to
22:00
Speaker 1: that number. But it still wasn't enough for the Federal
22:04
Speaker 1: Trade Commission, assuming anything would have been enough, frankly, assuming
22:08
Speaker 1: that there was a deal to make.
22:11
Speaker 2: The former CEO of Kroger's testified that Kroger relied on
22:16
Speaker 2: the advice of antitrust counsel to come up with the
22:19
Speaker 2: stores and assets that were to be sold.
22:23
Speaker 1: Seriously? Seriously?
22:26
Speaker 2: I'm not saying it, Harry.
22:27
Speaker 3: They're saying it.
22:27
Speaker 1: You're the CEO of Kroger and you're turning over this
22:33
Speaker 1: huge $ 24 billion deal saying, I don't have anything to
22:35
Speaker 1: do with it. It's up to you guys, lawyers, who
22:39
Speaker 1: don't know rap about business. Actually, you do have limited
22:43
Speaker 1: experience in one supermarket deal. The lawyers don't drive this ship.
22:50
Speaker 1: The CEO does. I mean, the CEO knows the business.
22:54
Speaker 1: The CEO comes in and makes the pitch. The enforcers
22:59
Speaker 1: don't want to hear from the lawyers. They know what
23:00
Speaker 1: the lawyers are going to say. We draw little circles
23:03
Speaker 1: around each store. And how many do we know? It's
23:06
Speaker 1: the overlaps. And that's what we do. The CEO comes
23:09
Speaker 1: in and says, we're going to divest enough stores to
23:12
Speaker 1: make a chain that will be a viable competitor. And
23:14
Speaker 1: let me show you how. Let me talk to you
23:17
Speaker 1: about the business and why we need to do this.
23:19
Speaker 1: That's what CEOs do. It's hard for me to believe
23:22
Speaker 1: the Kroger guy. I mean, that's count two in the
23:25
Speaker 1: shareholder suit. Really? He left it up to the lawyer?
23:28
Speaker 1: I mean, I don't know. I'm not the judge. I'm
23:31
Speaker 1: not judging his credibility. Maybe that's in fact what happened.
23:34
Speaker 1: But again, if that's what happened, what was he thinking? Frankly,
23:39
Speaker 1: I can't imagine the lawyers taking this strategically. What the
23:44
Speaker 1: lawyer wants to do is to bring in the business
23:47
Speaker 1: people to make the case that this is a good
23:51
Speaker 1: business deal. that will serve consumers. Lawyers can't make this
23:55
Speaker 1: pitch as well as the business people. And frankly, the
23:59
Speaker 1: enforcers don't really want to hear, as I said, from
24:02
Speaker 1: the lawyers. They want to hear from the business people.
24:04
Speaker 1: So maybe this is a case of saying, not me,
24:07
Speaker 1: I was the guy.
24:09
Speaker 2: Stay with me, Harry. Coming up next on the Bloomberg
24:11
Speaker 2: Law Show, we'll talk about what Albertsons would have to
24:14
Speaker 2: prove and whether that's an uphill battle. The main event
24:21
Speaker 2: in Delaware's business courts this week remains the heavyweight battle
24:25
Speaker 2: between Albertsons and Kroger over who's to blame for the
24:29
Speaker 2: collapse of their $ 24. 6 billion merger. Albertsons is seeking more
24:35
Speaker 2: than $ 9. 3 billion over allegations that Kroger breached their agreement
24:41
Speaker 2: by failing to win antitrust clearance from the federal judge
24:45
Speaker 2: who blocked the transaction in 2024. Kroger argues that Albertson
24:51
Speaker 2: secretly worked to tank the transaction by offering to make
24:55
Speaker 2: only token divestitures. The first half of the 10-day trial,
24:59
Speaker 2: which started on October 19th, featured finger-pointing from the former
25:04
Speaker 2: chief executives who presided over the merger attempt, including the
25:08
Speaker 2: Kroger CEO who resigned for unspecified misconduct in March of 2025.
25:13
Speaker 2: And an account of the deal by the one-time top
25:17
Speaker 2: lawyer at Albertson's who lost out on a $ 20 million
25:21
Speaker 2: bonus when it fell apart. Antitrust attorneys and accountants also
25:25
Speaker 2: offered detailed testimony about the store divestiture plans that failed
25:30
Speaker 2: to secure regulatory approval. More expert economic testimony is on
25:35
Speaker 2: tap this week. I've been talking to antitrust professor Harry
25:39
Speaker 2: First of NYU Law School. What does Albertsons have to show?
25:44
Speaker 2: That Kroger's knew it was breaching the agreement or that
25:47
Speaker 2: there was bad faith? I mean, what's the showing?
25:50
Speaker 1: I assume the pitch, the argument to the judge is Kroger's,
25:56
Speaker 1: once they got further into it and realized that this
25:58
Speaker 1: wasn't going to fly, realized they made a mistake. That
26:02
Speaker 1: they were going to either be forced to cut the
26:05
Speaker 1: guts out of this deal that was the reason for
26:08
Speaker 1: making the deal or... Maybe they looked more closely at
26:11
Speaker 1: Albertson and said, do we really want this change? Something,
26:15
Speaker 1: they got buyer's remorse. You know, it's a concept that
26:17
Speaker 1: the judge, that we all understand. And that, so what
26:20
Speaker 1: they did was, you know, they just made sure that
26:24
Speaker 1: it wouldn't go through. But, you know, along the way,
26:28
Speaker 1: they spent a lot of money. I think that's what
26:31
Speaker 1: they're going to try to do. So they, in effect,
26:34
Speaker 1: sabotaged the deal that they just signed. And that, Cerberus,
26:39
Speaker 1: the owners of Albertsons, also felt that this was going
26:43
Speaker 1: south and there was nothing they could do to salvage this.
26:47
Speaker 1: And so they sort of turned on each other. But
26:50
Speaker 1: you have to make out some change of heart, I guess,
26:53
Speaker 1: because they did sign the deal and they did announce
26:57
Speaker 1: it with great fanfare. And, you know, they seemed to
27:00
Speaker 1: have pursued something.
27:03
Speaker 2: Do you think that they would need something like a
27:04
Speaker 2: smoking gun? Because it doesn't seem like it's going to
27:07
Speaker 2: come from the testimony of the executives.
27:10
Speaker 1: Smoking guns always help.
27:12
Speaker 3: Yes.
27:13
Speaker 1: I mean, my guess is that they need to show
27:15
Speaker 1: some serious deviation from normal negotiating practice. You know, the
27:22
Speaker 1: normal way that parties go about dealing with these supermarket mergers.
27:27
Speaker 1: I mean, they're lawyers who, this is their area of specialty.
27:30
Speaker 1: And these companies... have been put together through merger. I mean,
27:34
Speaker 1: you know, both companies own different major brands of supermarkets
27:41
Speaker 1: that they've acquired over time. So there's a way that
27:44
Speaker 1: this sort of a normal operating procedure, a way that
27:47
Speaker 1: these mergers get negotiated, happen, how parties react. And I
27:53
Speaker 1: think they have to show, maybe both sides, some deviation
27:58
Speaker 1: from the norms. And yes, maybe there's something in the
28:01
Speaker 1: emails about, you know, the financials don't look quite so
28:04
Speaker 1: good or, you know, we're inheriting some stores that look
28:08
Speaker 1: great but aren't and they're forcing us to get rid
28:11
Speaker 1: of the good ones that we wanted and things aren't
28:15
Speaker 1: going well. So, yes, maybe there has to be some
28:18
Speaker 1: of that.
28:18
Speaker 2: So, I mean, as you said, and as you started
28:20
Speaker 2: out with, one of the things that Kroger's is saying
28:24
Speaker 2: is that this deal wouldn't have gone through anyway because of,
28:27
Speaker 2: you know, Lena Kahn and the aggressive FTC. So they
28:31
Speaker 2: went against at least 38 mergers. And from what I saw,
28:35
Speaker 2: something like 37 of them were dropped. Does that seem
28:39
Speaker 2: like a good defense? I mean, besides the fact that
28:41
Speaker 2: we were stupid to go into this knowing that Lena
28:44
Speaker 2: Kahn was in charge, but... Well, I mean.
28:48
Speaker 1: You know, again, it's hard to say what sort of
28:50
Speaker 1: antitrust advice they got. The commission was not always successful
28:54
Speaker 1: in litigation. They lost some high-profile cases. Supermarket mergers are
28:58
Speaker 1: a little different. I mean, there have been a lot
29:00
Speaker 1: of them. There's a lot of law in the area.
29:04
Speaker 1: You have a good sense of what the likely market
29:06
Speaker 1: definitions are going to be. So this is not innovation territory,
29:11
Speaker 1: as were a number of FTC merger cases. This is
29:16
Speaker 1: sort of bread and butter territory from a legal point
29:19
Speaker 1: of view. So you would, I think, have to say
29:22
Speaker 1: in weighing your litigation risk, high risk that there'll be litigation. And,
29:28
Speaker 1: you know, the law is not all that favorable to
29:31
Speaker 1: the merging parties here if they've got to actually litigate it.
29:35
Speaker 1: So it would have been at best, I think, you know,
29:38
Speaker 1: looking at this objectively approach, risky merger. And past statistics
29:42
Speaker 1: of what the FTC has won or lost generally, I
29:46
Speaker 1: wouldn't have relied on those because this is in the
29:48
Speaker 1: heart of merger doctrine. It's not a new doctrinal leap,
29:53
Speaker 1: as were some of the cases the commission brought, some
29:56
Speaker 1: of which it won and some of which it didn't.
29:59
Speaker 1: You know, that, I assume, went into the mix of
30:01
Speaker 1: the advice that counsel gave. But given on both sides,
30:05
Speaker 1: I mean, both sides knew there was a risk in
30:07
Speaker 1: this that it wouldn't go through.
30:10
Speaker 2: So the last public fight, big public fight, over a
30:13
Speaker 2: deal that collapsed for antitrust reasons was the $ 48 billion
30:18
Speaker 2: merger of Cigna and Anthem. And there, the chancery judge...
30:22
Speaker 2: concluded Cigna had breached the merger but refused to award
30:26
Speaker 2: billions of dollars in damages because the deal was likely
30:29
Speaker 2: to have been blocked for antitrust reasons anyway. That sounds
30:33
Speaker 2: an awful lot like this. I mean, maybe even a
30:36
Speaker 2: better case than this. It seems like this case is
30:39
Speaker 2: very difficult.
30:40
Speaker 1: Yeah. Well, I mean, if the argument is you didn't
30:43
Speaker 1: make best efforts to settle the case and the judge says,
30:47
Speaker 1: and you say, you know, and you write in your
30:48
Speaker 1: papers and you say in your testimony this case was unsettlable,
30:52
Speaker 1: I don't know what best efforts anybody should have expected
30:55
Speaker 1: in that way. In a way, you'd have to say, well,
30:58
Speaker 1: they threw the litigation, and that's patently not true. The
31:02
Speaker 1: case was heavily litigated with experts, and they didn't just say, hi, judge,
31:08
Speaker 1: we should win and sit down. There was good faith litigation.
31:11
Speaker 1: So you have to find something in sort of the
31:14
Speaker 1: entrails of the way they negotiated that had they done
31:18
Speaker 1: something different, something else might have happened. And you're right.
31:22
Speaker 1: I think that's probably another difficulty of even if they
31:26
Speaker 1: had negotiated in a different way, would it have made
31:30
Speaker 1: a difference? And if it wouldn't have made a difference,
31:34
Speaker 1: what is Albertsons exactly complaining about? They didn't do something
31:38
Speaker 1: which didn't harm them.
31:40
Speaker 2: A termination fee. There was a $ 600 million termination fee.
31:44
Speaker 2: I mean, I thought if the deal doesn't go through,
31:46
Speaker 2: you get the termination fee. But no, you don't just
31:49
Speaker 2: get the termination fee. They then take it to court
31:52
Speaker 2: and fight over the termination fee.
31:54
Speaker 1: I mean, my guess is that Albertson's litigation then sparked
31:59
Speaker 1: resistance from Kroger for paying the termination fee at all
32:04
Speaker 1: and looking for a reason for why they didn't owe
32:07
Speaker 1: the termination fee. Now, I don't know how that clause
32:10
Speaker 1: is written in the contract and what obligations Albertson had.
32:15
Speaker 1: So you certainly... You wouldn't want to write in a
32:18
Speaker 1: termination fee that would allow one party to sabotage the
32:22
Speaker 1: deal so it could get the $ 600 million. But exactly
32:26
Speaker 1: what Albertsons did or what they're claiming we'll see in
32:29
Speaker 1: this litigation, no, certainly parties can object to that. And
32:34
Speaker 1: maybe they can always settle it, too, for some reduced
32:37
Speaker 1: amount of the termination fee. I don't know. But what
32:40
Speaker 1: I'm reminded of, and maybe this in part is the
32:44
Speaker 1: model driving Albertsons, is AT & T T-Mobile merger, which
32:49
Speaker 1: ultimately failed. And the breakup fee was $ 4 billion, which
32:56
Speaker 1: AT & T had to pay to Deutsche Telekom. That
32:59
Speaker 1: allowed Deutsche Telekom to revive Sprint as a competitor. It
33:04
Speaker 1: was a $ 3 billion termination fee. And then there was
33:08
Speaker 1: some additional wireless spectrum thing. So over this failure... Deutsche
33:14
Speaker 1: Telekom ended up reviving Sprint and then went on to
33:18
Speaker 1: become a more successful competitor. So sometimes these fees can,
33:23
Speaker 1: you know, turn out to have sort of good implications
33:26
Speaker 1: for competition, but, you know, no guarantee. So maybe Albertsons
33:30
Speaker 1: is looking for a little cash infusion, although I have
33:33
Speaker 1: no idea. So maybe they'll end up being a better competitor. Actually,
33:37
Speaker 1: one other thing. Kroger is trying to acquire Giant Eagle.
33:43
Speaker 1: another supermarket chain for $ 1. 7 billion. So that was announced
33:49
Speaker 1: in July. I haven't seen anything further, a much smaller
33:54
Speaker 1: merger than Kroger Albertsons, but a different FTC.
34:01
Speaker 2: Very different.
34:02
Speaker 1: Still maybe not one that's highly disposed to just simply
34:07
Speaker 1: allowing grocery store mergers at a time of high food prices.
34:11
Speaker 1: So we'll see.
34:13
Speaker 2: And this trial concludes this week in Delaware Chancery Court,
34:17
Speaker 2: and then the post-trial arguments will take place in a
34:21
Speaker 2: few months. That's the way Delaware Chancery Court does it. Thanks,
34:25
Speaker 2: as always, Harry. That's Professor Harry First of NYU Law School.
34:30
Speaker 2: And that's it for this edition of the Bloomberg Law Show. Remember,
34:33
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34:49
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