Bloomberg reports that a bipartisan group of attorneys general from Arizona, California, Idaho, Illinois, Washington State and Washington, DC, have argued in a letter that Albertsons should delay $4 billion worth of imminent dividend payments to shareholders that was put into place as the company agreed to be acquired by Kroger for $24.6 billion.
The dividend payments “could be a massive improper giveaway to certain shareholders,” the attorneys general say, and, "with less cash available, the grocery chain would face difficulty competing in what is already a 'very, very tough marketplace' should Kroger’s planned takeover of Albertsons be blocked" either by regulators or legislators.
The letter makes the case that "the merger has the potential to impact consumers already hurting from inflation, as well as the wages of hundreds of thousands of employees." The attorneys general have the option of seeking a court injunction to stop the dividend payments.
Bloomberg writes that "the move by Racine and his counterparts presents a twist in what has been a long ownership journey for Cerberus Capital Management, which paid $350 million in 2006 for Albertsons. Cerberus, the grocery giant’s largest investor, stands to make more money from an already profitable deal with the proposed merger price valuing its remaining stake at $5.2 billion."
The story says that "in a statement, Albertsons stood by plans for the merger and the payout. 'Following the dividend payment, Albertsons Cos. will continue to be well capitalized with a low debt profile and strong free cash flow,' the company 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.'
"A Kroger spokesperson didn’t respond to a request for comment."
The Los Angeles Times reports that the attorneys general gave Albertsons an October 28 deadline for responding to their letter; the dividend is scheduled to be paid out on November 7.
Kroger and Albertsons have said that, subject to all the required regulatory approvals and likely required store divestments, they expect the deal to close in early 2024.
- KC's View:
I don't completely understand the rationale behind an Albertsons dividend payment of this magnitude at this point in the process. Even if Albertsons remains "well capitalized" after the $4 billion is paid out, there is at least an argument that it would be better positioned to compete - by plowing that money into holding the line on pricing and investing in front line employee wages and benefits - if it has that cash in the bank.
This dividend payment at the very least leaves Albertsons - and, by extension, Kroger - open to accusations that this deal is a lot better for shareholders than for customer and employee stakeholders. Some will say this this is okay, that shareholder should reap the benefits … but that likely is not the position that regulators and lawmakers will take.
Perception matters. Optics matter. And I'm not sure they're working in Albertsons' favor in this case.