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Kroger-Albertsons Merger Faces Legal Pushback

Albertsons is the subject of several lawsuits surrounding a shareholder payout tied to its merger with Kroger.

The attorneys general for four states have filed lawsuits to block a $4 billion payout to Albertsons shareholders — set to be distributed on Nov. 7, 2002 — until the company’s proposed $24.6 billion merger with Kroger can be reviewed by antitrust authorities. The suits contend that the historically large dividend will jeopardize the chain’s workers by depleting Albertsons of ready cash. Additionally, high-ranking U.S. legislators are criticizing the merger deal itself, saying the combined chains would create a monopoly that would harm consumers.

On Nov. 1, 2022, Washington State Attorney General Bob Ferguson filed a lawsuit in King County district court, followed a day later by a similar lawsuit from District of Columbia Attorney General Karl Racine in federal court. Racine was joined in his lawsuit by the Office of the Attorney General for the States of California and Illinois.

Both lawsuits seek to stop the shareholder payout until the impact of the proposed merger on workers, consumers and competition can be fully assessed. Albertsons and Kroger said they intend to continue with the payout, calling the lawsuits “meritless,” and saying that the planned special dividend is not contingent on its merger with Kroger but rather is part of the company’s longstanding capital return strategy.

However, the lawsuits point out that the proposed Nov. 7 shareholder payout is 57X greater than historic dividends Albertsons has provided and exceeds the company’s cash on hand. According to AG Ferguson’s filing, the company “will pay for the dividend with $2.5 billion in cash on hand and borrow the rest.” 

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“Albertsons’ rush to secure a record-setting payday for its investors threatens District residents’ jobs and access to affordable food and groceries in neighborhoods where no alternatives exist,” said AG Racine in a statement. “This would have a particularly devastating impact on struggling people and families with access to fewer grocery stores during a time of historically high inflation. My office will use all our authority to stop this cash grab and protect District workers, families and consumers.”

The proposed merger, which was announced Oct. 14, 2022, would see Kroger acquire all outstanding shares of Albertsons for an estimated total consideration of $34.10 per share, representing a premium of approximately 32.8% above the price of Albertsons common stock as of Oct. 12, 2022. Together, the grocery conglomerate would employ more than 710,000 associates and operate a total of 4,996 stores, 66 distribution centers, 52 manufacturing plants, 3,972 pharmacies and 2,015 fuel centers.

Albertsons announced plans for the special dividend on the same day the merger with Kroger was made public. The dividend of $6.85 per share totals nearly $4 billion, which AG Racine pointed out is more than two years of profit for the company. Both lawsuits claim that such a payout would severely limit Albertsons’ cash on hand, depriving the company of the money needed to effectively operate and compete with other supermarkets, including Kroger.

“As the union of grocery workers in the District of Columbia and beyond, we applaud Attorney General Karl Racine for taking action to halt the brazen attempt to loot Albertsons through an unprecedented special dividend payment,” said Mark Federici, President of United Food & Commercial Workers Local 400 in a statement. “If allowed to occur, this payout will leave Albertsons largely depleted of liquid assets and put the livelihoods of countless grocery workers in jeopardy.”

Albertsons has refuted those claims, saying in a statement reported in numerous publications that “The allegation that this dividend will somehow hinder our ability to compete in the marketplace is also meritless. Given our financial strength and positive business outlook, we are confident that we will maintain our strong financial position as we work toward the closing of the merger.”

At press time, the retailers have not responded to emails requesting comment. The lawsuits surrounding the impending shareholder payout aren’t the first pushback the merger has seen, and likely won’t be the last. In late October, U.S. Senators Elizabeth Warren and Bernie Sanders and U.S. Representative Jan Schakowsky urged the Federal Trade Commission to oppose the deal, accusing both companies of “price gouging” consumers during the pandemic and saying the combination of the two businesses would create a monopoly of buyer power while hurting both workers and consumers.

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