feWest Cost Grocery Chain Haggen Sues Albertsons For $1B Over Misrepresentations In Acquired Stores

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(Patrick)

Nine months ago, when Albertsons and Safeway had to sell off a bunch of stores to make their $9.2 billion merger more palatable, the Washington-based Haggen supermarket chain agreed to snap up nearly 150 of those locations. Now Haggen, in a $1 billion lawsuit, says the sale of these stores was really a calculated effort on Albertsons’ part to eliminate competition.

Haggen, which operates primarily in the Pacific Northwest, claims that since it agreed late last year to acquire 146 Albertsons and Safeway stores in Arizona, California, Nevada, Oregon and Washington, the company has been forced to close 26 of the stores because the larger chain interfered with its ability to successfully operate the stores.

According to the lawsuit [PDF], which was filed in U.S. District Court in Delaware, Albertsons engaged in “coordinated and systematic efforts to eliminate competition and Haggen as a viable competitor in over 130 local grocery markets in five states.”

Among other things, Haggen accuses Albertsons of pushing it to acquire the store under an aggressive time frame, misusing Haggen’s confidential information to draw customers away from the newly-acquired stores, providing inaccurate data about transferred inventory, providing misleading price information of transferred products and “sabotaging the quantity, assortment and quality of inventory transferred to Haggen.”

The larger chain also allegedly removed store fixtures and inventory that Haggen had paid for, strategically cut off Haggen stores from advertising and failed to perform routine maintenance on stores and equipment prior to signing over the stores.

Haggen claims that problems began early on when Albertsons made false representations in order to convince the smaller chain to purchase the 146 stores for $300 million.

Albertsons allegedly made false representations to both the company and the Federal Trade Commission about the larger chains’ commitment to the seamless transformation of the stores into viable competitors under the Haggen banner.

“During the transfer process, Albertsons launched its plan to gain market power and/or monopoly power in the [purchased market areas], acting in a manner that was designed to (and did) hamstring Haggen’s ability to successfully operate the stores after taking ownership,” the lawsuit states. “In all of the relevant markets, Haggen was a new entrant, and Albertsons’ improper conduct destroyed Haggen’s ability to build essential goodwill among consumers in those markets.”

As a result of these actions by Albertsons, Haggen claims it was forced to close 26 of the acquired stores and “faces the potential closure of additional stores.”

“Haggen never intended to close any of the Stores it acquired,” the lawsuit states. “To the contrary, Haggen saw these Stores as an exciting opportunity to transform itself into a super-regional grocer with a presence up and down the west coast.”

A spokesperson for Albertsons tells The Oregonian that the company did not engage in anti-competitive or inappropriate practices, and maintains that the divestiture followed the process set out by the FTC.

“The allegations contained in the Haggen complaint are completely without merit and we will vigorously defend ourselves in court,” the company said. “Like the process followed by Albertsons in prior divestitures, our process with Haggen was the subject of regular reports to the FTC and review by the Monitor Trustee appointed by the FTC.”

A spokesperson for the FTC, which granted the Albertsons and Safeway merger after Haggen and other retailers bought the divested stores, said the agency is not liable for the store closures or any lost jobs that may result.

“Obviously, our expectation was and remains that Haggen will become a successful competitor to Albertson’s/Safeway, and we are disappointed in the current situation, which we are following closely,” the agency wrote in an email to The Oregonian.

This isn’t the first time that Albertsons and Haggen have sparred since the store acquisition occurred.

Earlier this year, Albertsons filed a lawsuit against Haggen accusing the grocer of fraud for failing to pay for $41 million in inventory.

At that time, The Oregonian reports that Haggen claimed Albertsons had breached the purchase agreement and had notified Albertsons of those violations before Albertsons sued.

The two companies also face legal action from a Southern California union over allegations they violated union contracts.

[via The Oregonian]

by Ashlee Kieler via Consumerist