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The Kroger Co. acquisition of Albertsons Companies is already headed to court – specifically, the debate over a large dividend payment the company hopes to pay out next week.
In separate actions, the State of Washington Attorney General and a group including the attorneys general from Washington, DC, California, and Illinois sued to block a nearly $4 billion dividend payment set to be paid to shareholders on Monday. The suits were filed against both Albertsons and Kroger.
“What is unusual is the way Defendants structured their transaction, because by the time the merger review ends… one of them may barely be left standing,” the suit filed in Washington, DC district court read. “On November 7, 2022, defendants have arranged for Albertsons to pay $4 billion, roughly all the cash it has available to compete today, to stockholders, $1.5 billion of it from a loan it will take out.”
The suit from the DC-led group said they believe discovery in the case could show a “calculated effort” to make the case to regulators that Albertsons is failing business “that Kroger should be allowed to acquire lest it go out of business.”
The DC-led group is asking for a judge to halt the dividend payment, saying the special dividend is “57 times” Albertsons’ usual dividend payments.
“Defendants have an agreement that, as detailed herein, will have an anticompetitive effect on competition among supermarkets in the District of Columbia, California, and Illinois, and that is sufficient basis for this Court to stop the Special Dividend from being paid, and protect consumers and workers in all the States.”
In the Washington State suit, that state’s attorney general Bob Ferguson said the payout would hurt Albertsons.
“Paying out $4 billion before regulators can do their job and review the proposed merger will weaken Albertsons’ ability to continue business operations and compete,” Ferguson said. “Free enterprise is built on companies competing, and that competition benefits consumers. Corporations proposing a merger cannot sabotage their ability to compete while that merger is under review.”
Albertsons and Kroger would have significant overlap in Washington. By Reuters’ estimate, they together own stores that command more than 40% of all grocery buying in the Seattle market.
The office of Idaho Attorney General Lawrence Wasden signed on to an earlier letter spearheaded by the DC-led group of states asking Albertsons to delay the dividend payment, but is not part of either of the two lawsuits. Spokesperson Scott Graf told BoiseDev the office does not comment on pending matters.
“The special dividend is the means by which we are independently executing our longstanding capital return strategy,” an Albertsons spokesperson said in a statement provided to Reuters after the Washington state suit was filed. “It will be paid regardless of whether the merger is completed.”
The company said in earlier news releases that the payment was being made “in connection with” the merger.