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Washington sues to stop Albertsons $4 billion dividend plan

Nov. 2, 2022 Updated Wed., Nov. 2, 2022 at 11:38 a.m.

 (Bridget Bennett/Bloomberg)
(Bridget Bennett/Bloomberg)
By Malathi Nayak Bloomberg

The state of Washington sued Albertsons Cos. to stop the grocery chain from paying $4 billion to shareholders as a special dividend before state and federal antitrust reviews of its potential merger with rival Kroger Co.

The state accused Albertsons and Kroger in the lawsuit of running afoul of its antitrust and consumer protection laws. Bob Ferguson, the state’s attorney general, plans to file a request for a temporary restraining order to block Albertsons from handing out the dividend while the legal fight proceeds, his office said in a statement.

“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.

Albertsons had announced the dividend after agreeing to merge with Kroger in a deal valued at $24.6 billion. In an Oct. 28 letter reviewed by Bloomberg, the supermarket chain told several attorneys general, including Ferguson, that the payment is independent of the merger and part of a plan to return capital to shareholders. The deal is expected to close in early 2024.

“The lawsuit brought by the Washington state attorney general is meritless and provides no legal basis for canceling or postponing a dividend that has been duly and unanimously approved by Albertsons Cos.’ fully informed board of directors,” an Albertsons spokesperson said in a statement.

“The decision to issue a special dividend was made solely by Albertsons” and is “independent of the merger transaction,” a Kroger spokesperson said in a statement, adding that Kroger remains committed to working with the Federal Trade Commission, state attorneys general and others “to complete the transaction and unlock the many benefits it offers.”

Making payments to the tune of $4 billion, through cash on hand and loans, “will cripple Albertsons’ ability to operate its stores and meaningfully compete with Kroger during the time before the deal closes and leave it in a weakened state if the deal subsequently falls apart,” Washington state said in the lawsuit.

The $4 billion “special cash dividend” amounts to “a windfall” to a consortium of private equity firms that back Albertsons, the state said.

“Decreased liquidity thus has the potential to do things like reduce Albertsons’ ability to purchase inventory, such as baby formula, and stock its retail store shelves for consumers who need it to sustain lives of infants,” the state said. That could also lead to layoffs, the state said.

“The allegation that this dividend will somehow hinder our ability to compete in the marketplace is also meritless,” the Albertsons spokesperson said.

Last week, Ferguson, Washington, D.C. Attorney General Karl Racine and attorneys general from Arizona, California, Idaho and Illinois urged Albertsons in a letter to hold off on the dividend while they review the pending merger, saying it could be a “massive improper giveaway to certain shareholders.”

The grocery chain rejected the attorneys general’s request in the Oct. 28 letter.

Canceling the dividend “would expose Albertsons to significant legal and financial liability” as trading in the stock ex-dividend is ongoing and “investors of all sorts are acting in reliance” on the plans, the company wrote. “Accordingly, Albertsons cannot comply with the states’ request to delay payment of the special dividend.”

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Bloomberg’s Brendan Case and Chris Dolmetsch contributed to this report.

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