In the latest development in the deal that would see Kroger and Albertsons merge in a deal valued at $24.6 billion, a Washington State judge ruled November 4 that a $4 billion dividend Albertsons was scheduled to pay its shareholders should be delayed until more regulatory review can be undertaken in response to a lawsuit filed by the attorney general of Washington State seeking to stop the dividend payment on November 7.
Albertsons quickly replied, saying that it will seek to overturn the restraint as quickly as possible, adding its strong conviction that the temporary order was based on the incorrect belief that the dividend would hamper its ability to remain competitive while the Kroger deal is under review. A hearing is scheduled for November 10 on the Washington State’s preliminary injunction.
On October 26, six attorneys generals representing Arizona, California, Idaho, Illinois, Washington State and Washington, DC sent letters to Kroger chairman and CEO Rodney McMullen and Albertsons chief executive Vivek Sankaran asking both retailers to delay the part of the agreement that calls for the $4 billion dividend payment to Albertsons shareholders on November 7 until a review of the deal can be completed.
On October 28, Albertsons responded, noting that that they had planned on issuing the dividend prior to the merger announcement and that it was independent of the Kroger deal. Four days later, the attorney general of Washington State filed a lawsuit seeking a temporary restraining order to halt the payout. That suit was quickly followed up with other litigation from the attorneys general in Washington, DC, Illinois and California who also sought to stop the dividend payout by November 7.
“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 DC Attorney General Karl Racine. “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.”
Albertsons also addressed the attorneys general claim that the issuance of a dividend that large would hinder the Boise-based retailer’s ability to continue operate normally and remain competitive.
“The allegation that this dividend will somehow hinder our ability to compete in the marketplace is also meritless, Albertsons said. “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. Additionally, payment of the special dividend will not hinder Albertsons Cos.’ ability to continue investing in our stores and technology to provide an even better shopping experience while we continue to operate as an independent company, and it will not impact the agreements that we have made with unions representing our associates to increase wages and benefits.”
“Regulatory approval of the merger is far from assured. The states must undertake their review and assure themselves that competition in all relevant antitrust markets at issue is preserved,” the state AGs wrote in the letter.
They also said that if the deal were scrapped, Albertsons would need the money “to compete with other grocery stores, a goal that its decision to enrich its shareholders to the tune of $4 billion will have made significantly more difficult to accomplish, if not unattainable altogether.”
The leader of the AGs appears to be Racine, who noted in a statement, “Healthy and strong competition is an American value that Republicans and Democrats can unite around,” He continued, “Anticompetitive mergers have real impacts on everyday people. We’re deeply concerned about the level of concentration in essential industries, such as grocery stores. And we’re asking Albertsons to not proceed with the payout while we thoroughly assess whether this merger is anti-competitive, anti-consumer or anti-worker. While we trust that Albertsons will adhere to our request, we are actively exploring other options to achieve our objectives, including litigation.”
Albertsons had stated in its initial letter on October 28 that the two chains have promised to use $500 million in savings from the combination to lower prices, $1 billion to improve stores and another $1 billion to continue raising associate wages and benefits. The chain said returning capital to shareholders “who have entrusted Albertsons with being a leading grocer” is part of its growth strategy.
“It provides near-term liquidity to all of its shareholders, which Albertsons had planned and was prepared to do regardless of any acquisition by Kroger,” Albertsons said. “It reflects Albertsons’ independent decision to effectuate the capital allocation strategy it began evaluating with its advisors long before Kroger expressed interest in Albertsons.”
Under the terms of the original agreement, announced October 14, Albertsons would merge with rival Kroger in a deal that both parties hoped would be finalized by early 2024. The proposed deal would bring together the number one and number two pure-play supermarket retailers in the U.S. (Walmart/Sam’s Club will remain the overall retail food leader by a wide margin), Kroger would acquire all of the outstanding shares of Albertsons Companies, Inc. common and preferred stock (on an as-converted basis) for an estimated total consideration of $34.10 per share, implying a total enterprise value of approximately $24.6 billion, including the assumption of approximately $4.7 billion of Albertsons Cos. net debt.
