Albertsons Cos. was ordered by a Seattle-area judge to keep its $4 billion special dividend on hold until Dec. 19 while Washington’s attorney general asks the state supreme court to halt the payment during a regulatory review of the grocery chain’s pending merger with Kroger Co.
Washington is making the last-ditch appeal for the blockage of the dividend, while other states are also pursuing a parallel attempt in federal court in Washington.
The plan of Albertsons to pay shareholders Cerberus Cap Management and Cerberus Capital Management has been rescinded by court orders since early November. The US Federal Trade Commission asked Kroger this week for more information on the transaction, signaling an in-depth antitrust review for a deal that isn’t expected to be completed until 2024 – if it closes at all.
The Seattle-area judge ruled Friday during a hearing that there was no legal justification to block the payment, but Washington Attorney General Bob Ferguson immediately filed an appeal with the state’s highest court.
Albertsons argues it should be allowed the special dividend, because it was already planning to distribute at least $4 billion to shareholders prior to it started merger talks with Kroger.
Still, the grocery chains disclosed the payout “as part of the transaction” when they announced their agreement Oct. 14, and Washington state officials said the dividend would hurt consumers by depleting the company’s reserves and should be blocked until the deal was completed.
Ken Schubert of King County Superior Court stated that the state has failed to prove that the distribution involved an agreement between Kroger & Albertsons, which would be against federal antitrust law.
He said Albertsons decided to issue the dividend on its own and that Kroger’s only input was to insist that the dividend didn’t exceed $4 billion, which it feared would weaken the financial condition of the company it was buying. “Frankly, Kroger didn’t care if there was a special dividend one way or the other,” the judge said.
Albertsons lawyer Ted Hassi informed the judge that delaying dividend payments would make it hard for the company’s shareholders to receive the money before Jan. 1, which marks the start of a new year.
Kroger said it was pleased with the court’s decision and reiterated that it was committed to working with regulators to get the deal done. The tie-up will “provide compelling benefits to customers, associates and communities,” Kroger said in a statement.
Albertsons continues to believe the claim by the Washington attorney general “is meritless and provides no legal basis for preventing the payment of a dividend that has been duly and unanimously approved by Albertsons Cos.’ fully informed Board of Directors,” the company said in a statement.
Several other states also have argued the payments would weaken the company’s ability to compete if its takeover by Kroger is blocked.
A federal judge in the nation’s capital on Nov. 8 denied California, Illinois, and the District of Columbia requested temporarily to block the dividend. But the attorneys general from those states are now asking US District Judge Carl Nichols to issue a preliminary injunction — exactly what the Seattle judge rejected.
The AGs told Nichols in a Saturday court filing that “new evidence” and “new arguments” support their position that if the dividend is paid out now, it “will likely render Albertsons unable to compete as strongly as it can today, in violation of federal and state antitrust laws.”
Albertsons said that it would pay dividends using $2.5 Billion in cash and loans. Although originally scheduled for Nov. 7, the payment was temporarily halted due to a Seattle judge.
Cerberus purchased the Grocery in 2006, and now holds a 28% stake.
The two largest traditional supermarket chains in America are Kroger and Albertsons. There is significant overlap in major markets such as California, Washington and Texas.
The companies are also facing fierce competition from warehouse clubs and mass-market retailers that sell both food and general merchandise. According to Numerator, a market researcher, Kroger comes in second for grocery market share, behind Walmart Inc. Albertsons is fourth, after Costco Wholesale Corp.
The US Senate Judiciary Committee’s antitrust panel held a hearing on the Kroger-Albertsons deal Nov. 29 at which multiple senators questioned whether the combination should be allowed to close.
While senators don’t have the ability to derail the merger, their opposition adds to the controversy swirling around the deal, which also faces resistance from consumer groups and a labor union representing employees of both grocers.
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