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Last Friday, as the stock market opened — Albertsons’ stock dropped sharply.
The apparent cause? A novel deal to pay shareholders a large dividend next month.
Next month, Albertsons Companies plans to pay a large dividend to every single shareholder. The company will pay $6.85 per share. With 576.3 million shares of the company outstanding, that means Albertsons will pay out $3.94 billion to shareholders.
Most of Albertsons’ stock is held by a small group of private equity investors, led by Cerberus Capital Management. The dividend deal, announced in connection with this month’s acquisition announcement, stands to allow them to see a large upfront payment on the deal with Kroger.
The stock dropped Friday, the cut-off date for the dividend. Shareholders had to own stock as of Friday to get the dividend.
But there is no assurance the Kroger deal will happen. It’s likely to face scrutiny from the Federal Trade Commission. Hearings have been announced in the US Senate next month. Unions are lining up against the deal.
Kroger said it would pay $34.10 per share to buy up all of Albertsons – with the caveat that somewhere between 100 and 375 stores could be spun off from the more than 5,000 combined total. The dividend deal essentially lets the owners – primarily the private equity firms – see a portion of their money upfront.
“The cash component of the $34.10 per share consideration will be reduced by the per share amount of the special cash dividend, which is expected to be approximately $6.85 per share,” the Kroger news release said earlier this month.
If the deal doesn’t go through, there appears to be no way to claw back the $6.85 per share. The shareholders would still own their stock, but would have pocketed the roughly $4 billion, which Albertsons could instead use as working capital.
An unnamed Albertsons Companies representative responded to our questions on the dividend.
“The special dividend allows us to return cash to all of Albertsons Companies’ shareholders prior to the anticipated closing of the merger with Kroger in early 2024,” the spokesperson wrote. “Albertsons Cos. is well capitalized with strong free cash flow and expects to maintain its strong financial position as we work toward closing.”
A Kroger spokesperson did not reply.
Stock drops, well below offering amount
As of Monday at 11:30 am MDT, Albertsons’ stock was trading at $20.89. That’s well below Kroger’s offering price – minus the dividend. Some math here: Kroger offered to pay $34.10 per share, but would mark that price down by the $6.85 dividend – for a total of $27.25.
But the stock is trading more than $6.30 less than that offer price, which is an indication the market is skeptical the deal will close, or close at the current terms offered by Kroger.