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The Seattle Times reports that Washington State Attorney General Bob Ferguson has filed a lawsuit in King County Superior Court looking to prevent Albertsons "from paying investors a $4 billion dividend set to be paid out ahead of the grocery retailer’s proposed merger with rival Kroger."

The argument is that the "dividend would sap Albertsons’ ability to keep its stores open during the years it likely would take to complete the $20 billion-plus merger. The Attorney General’s Office also requested a temporary restraining order to block the dividend payment, which Albertsons expects to complete Monday, until the lawsuit is resolved."

The Times writes that "according to the lawsuit, Albertsons expects to cover the $4 billion amount using $2.5 billion in cash on hand and another $1.5 billion in loans.

Albertsons needs $10 billion to operate over the next year, according to the suit, which contends that a $4 billion payment 'will cripple Albertsons’ ability to operate its stores and meaningfully compete with Kroger during the time before the deal closes and leave it in a weakened state if the deal subsequently falls apart'."

Bloomberg reports that the dividend was announced by Albertsons after the merger agreement was announced, though the company says that it was decided upon before the merger talks started as "part of a plan to return capital to shareholders."

The Times writes that "the lawsuit argues that a similar crisis followed the 2015 Albertsons-Safeway merger: divested stores were sold to Haggen, a local retailer, but Haggen’s cash reserves were so diminished by a dividend payment to its own private equity firm owner that Haggen was ultimately unable to operate the stores, many of which were eventually acquired by Albertsons. Nine of the divested locations are no longer supermarkets, according to the suit."

AG Ferguson is one of several state Attorneys General who wrote a letter last week objecting to the dividend payment and threatening a lawsuit;  he appears to be the only one - to this point - to follow through on the threat.

KC's View:

Whenever the dividend payment was concocted, the optics are less than optimal - it leaves Kroger and Albertsons vulnerable to the argument that this merger is more about rewarding shareholders than helping shoppers.  And the extension of that argument is that there could be less effective competition if the deal is allowed to go through.

As I wrote here yesterday, the victory this week by the US Department of Justice in blocking a $2.18 billion merger of Penguin Random House and Simon & Schuster, two of the world's top five publishers, because it would be bad for competition, creates yet another potential roadblock to the Kroger-Albertsons deal.

And, opponents of the deal have created unlikely political bedfellows, with the Senators Elizabeth Warren (Democrat from Massachusetts), Bernie Sanders (Democratic Socialist from Vermont) and Mike Lee (Republican from Utah) all expressing skepticism.

Lots of potential problems, but plenty of time - since the estimates have been that it will take until early 2024 to complete the deal - to resolve them.  And, as I've said here before, the lawyers and lobbyists are going to get rich.