The saga of Albertsons’ long-awaited $4 billion dividend payout is over. On January 17, the Washington State Supreme Court denied the state’s attorney general’s Superior Court appeal, opening the door for the special one-time shareholder payout. The dividend issuance was originally announced on October 14 at the time of the Kroger-Albertsons merger agreement release. The $6.85 per common share special dividend payout will now be issued on January 20, 2023. It was originally scheduled to be paid on November 7, 2022, to stockholders of record as of the close of business on October 24.
As for Supreme Court appeal, the nine-member panel refused to even hold a formal hearing on the matter, issuing a two-page ruling noting that it has “declined to review the case or extend the temporary restraining (TRO) order which had previously blocked the dividend payout.”
After the court ruling, Washington attorney general Bob Ferguson said while this case may now be closed, the Kroger-Albertsons merger plans are still subject to ongoing investigation.
“The issues raised in our legal challenge are important to grocery workers and hardworking Washingtonians who must access affordable groceries to feed themselves and their families,” he said. “We respect the decision of the Court, but we are surprised and disappointed the Supreme Court decided not to hear this case. That said, I want to be clear: This merger is far from a done deal. My team and I will be conducting a thorough review.”
Ferguson argued that the dividend would weaken the company before the Kroger-Albertsons deal was completed and would also violate antitrust law and the Consumer Protection Act.
In first successfully gaining a TRO at the District Court level in King County on November 2, the state was able to block the dividend from being issued. That decision was reversed by a Superior Court judge on December 9. However, Ferguson quickly appealed that judgment to the state’s highest court, which set a February 9 date to hear the case. Albertsons, citing the extended delays of the case, asked for that appeal to be expedited, which the court agreed to do and scheduled a hearing to be held on January 17.
A similar suit was filed in Federal District Court in Washington, DC in early November by the state attorneys general of Illinois, California and Washington, DC. That effort failed and a subsequent appeal to a Federal Circuit Court was also rejected. However, the judges in the federal suits said they would allow the TRO to remain in place until the Washington case was adjudicated.
Now that the legal chess match regarding the dividend issuance has ended, the hard work begins.
Many trade observers believe that the battle to gain approval, especially from the Federal Trade Commission (FTC), will be a challenging task, even if it does ultimately get the FTC’s blessing.
An interesting piece in the New York Times on January 23 highlighted some of those challenges, many of which Food World has reported on since the merger was first announced last October 14.
While both Kroger and Albertsons claim the deal would be beneficial to consumers, creating a potential entity that includes approximately $200 billion in annual revenue with about 5,000 supermarkets (before divestitures), it has already brought heat from six state attorneys general, several U.S. Senators and the United Food and Commercial Workers International, whose 350,000 members employed by Albertsons and Kroger represent the UFCW’s largest employer bloc. Leaders from the International and Local UFCW affiliates argue that after store divestitures are made, the number of union jobs remaining will diminish.
Michael Needler, Jr., a regional grocer based in Ohio with 98 stores in four states under a variety of banners (Needler’s, Fresh Encounter, King Saver, Sack ‘N Save, Great Scot, Remke Markets, Community Markets, Germantown Fresh Market, Chief and Save A Lot), who testified at a U.S. Senate hearing in November, is concerned that such a mega-deal could inflate food prices even more and make for a more difficult retail landscape.
“When the large power buyers demand full orders, on time and at the lowest cost, it effectively causes the water-bed effect,” Needler told the Times. “They push down, and the consumer packaged goods companies have no option but to supply them at their demands, leaving rural stores with higher costs and less availability to products.”
And to add to those hurdles, the probable final arbiter about this deal is the FTC whose chairwoman Lina Khan, has been outspoken in her criticism of a previous large Albertsons deal (with Safeway in 2015). In her 19-month role, the leader of the five-member panel has sought to block seven proposed mergers.
If this deal is allowed to move forward (and we’re looking at least a 12-month review) there are likely to be more than 500 stores that will need to be divested (sold or closed). Both retail chains see the merger as positive for consumers, but in fact it may be more beneficial to the companies themselves.
For Albertsons and its primary financial partner Cerberus, which first invested in the merchant in 2006 and controls nearly 30 percent of the company’s equity, the recent dividend payment alone netted the Manhattan-based hedge fund about $1.2 billion and, according to the Times story, the retailer’s five top investors (PE and real estate firms) controlled 73 percent of Albertsons shares and have previously made $1.5 billion from their overall investment. For that group of already wealthy partners, the Kroger deal very well may be their last good option. Over its nearly 17 years of investment in Albertsons, the hedge funds et al have made two major acquisitions – the purchase of nearly 900 former Albertsons stores in 2013 that Supervalu (now UNFI) had purchased in 2006, and the acquisition of Safeway in 2015. The investors believed by increasing scale and leverage it would have a better chance of taking Albertsons public or selling it. A first attempt in late 2015 to launch an IPO failed at the 11th hour and an attempt to merge/marry into beleaguered Rite Aid in 2018 was embarrassingly rejected by the drug chain’s shareholders. The company finally launched a successful IPO in June 2020, but at a lesser value than it had hoped. From a strategic perspective, becoming a public-traded firm simply meant that the company had a little more breathing room to find a partner.
Earlier this year, Albertsons thought it had found a match. According to SEC filings, “Party A” (strongly thought to be Ahold Delhaize) emerged and reportedly offered the Boise chain $41a share. According to the NYT, that buyer walked away from a potential deal because its financial investors raised the idea of a multi-billion dividend payout to shareholders (which would have been worth more than $9 billion to those institutional investors alone).
Clearly, the sense of urgency escalated quickly and, according to several sources, the framework of the Kroger deal was completed in about six weeks. And even though Kroger knew a deal of this magnitude would raise significant antitrust concerns, the Cincinnati-based retailer also knew that the addition of at least 1,000 stores (at minimum, if the deal is approved) would be instantly accretive for the largest pure-play supermarket chain in the country.
Polling nearly 50 grocery industry executives during the last three months, we found that fewer than 50 percent believe the merger will gain regulatory approval. The Times story states that Washington Analysis, a research firm based in the District of Columbia, put the odds on a deal successfully closing at 35 percent.
With the special $4 billion dividend payment now history, the real battle is just starting.
* This story was updated on February 3, 2023 *
