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Grocery chain’s dividend blocked

by COMPILED BY DEMOCRAT-GAZETTE STAFF FROM WIRE REPORTS | November 5, 2022 at 1:42 a.m.

SEATTLE -- A judge in Washington state has temporarily blocked Albertsons Cos. from paying a $4 billion dividend to investors as the grocery giant entertains a proposed merger with The Kroger Co.

King County Superior Court Commissioner Henry Judson approved Thursday a motion by Washington Attorney General Bob Ferguson to block the dividend until the court can more fully consider whether the payment violates antitrust laws. The dividend was scheduled for payment Monday.

The proposed merger would combine two of the nation's largest grocery chains. Some critics worry that could mean reduced competition, higher food prices and the closure of under-performing locations. Albertsons and Kroger are among the biggest players in Washington.

"There is obviously further information and evidence that needs to be presented," Judson noted.

In a lawsuit filed Tuesday, Ferguson argued that the dividend is illegal because it potentially undercuts the ability of Albertsons to keep all its locations open in the several years likely needed to complete the proposed merger, which requires state and federal reviews.

His arguments were echoed by attorneys general in Illinois, California and the District of Columbia, which jointly sued to block the dividend in federal court Wednesday in Washington, D.C.

Boise, Idaho-based Albertsons said in a statement that the lawsuits are without merit.

To win regulatory approval for the merger, Albertsons and Cincinnati-based Kroger must sell hundreds of locations in areas where they have too much market overlap. The divestiture could have a major impact throughout Washington, for example, where Kroger and Albertsons collectively operate about 350 locations.

Each with stores under various names in more than 30 states, Kroger and Albertsons have agreed to put divested locations in a stand-alone company, managed by Albertsons, and then sell them to a competing retailer or retailers as part of the approval process.

However, some antitrust and business experts question whether locations chosen for divestiture might already be struggling financially. They worry that a cash-strapped Albertsons might fail to keep all those locations open while it finds a willing buyer and that some divested stores could close, as happened after the 2015 merger between Albertsons and Safeway.

"They're essentially looting this company," said Jonathan Williams, an official with United Food and Commercial Workers Local 400, which represents Albertsons workers. "Instead of paying themselves billions of dollars, the owners should invest in the essential workers who risked their lives to keep the stores open during the pandemic."

Albertsons says that the special dividend merely fulfills its legal responsibility to maximize rewards for shareholders and that the outlay does not imperil its finances or ability to grow.

Critics argue that the multibillion-dollar payout represents an egregious case of private equity managers enriching themselves while eviscerating a company.

"We're asking the court to stop this cash grab," District of Columbia Attorney General Karl Racine said. While acknowledging that the company is required to reward investors, Racine said Albertsons' responsibilities also include treating consumers and workers fairly. He also described the planned payout to Albertsons shareholders as "looting."

Albertsons is controlled by a consortium of five investment firms, the largest of which is Cerberus Capital Management, a private equity firm led by Steve Feinberg, a major Republican political donor who served on the economic advisory council for Donald Trump's 2016 presidential campaign.

Cerberus owns about 29% of Albertsons shares. Collectively, the consortium owns 75% and controls the company, according to financial statements.

While Albertsons has long faced financial struggles, its fortunes did improve with the covid-19 pandemic as consumers spurned restaurants for eating at home.

GROCER REBUTTAL AND POLITICAL FALLOUT

Albertsons contends that even after providing the $4 billion to shareholders, regardless of the merger, the company's finances would be fundamentally strong.

"Albertsons Cos. will continue to be well capitalized with a low debt profile and strong free cash flow," the company said in a statement. "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."

Arguments over the shareholder payout come as Kroger moves to purchase Albertsons for $24.6 billion, an agreement that is expected face intense antitrust review from federal regulators.

Members of both major political parties have raised concerns that the resulting company would create a national grocery empire, reduce competition and allow the behemoth to raise food prices.

Three senators -- Amy Klobuchar, D-Minn.; Richard Blumenthal, D-Conn.; and Cory Booker, D-N.J. -- already have urged the Federal Trade Commission to investigate the deal.

Sen. Mike Lee of Utah, the top Republican on the Senate Judiciary Committee's antitrust panel, joined in their concern, saying in a statement earlier this week that he would "do everything in my power to ensure our antitrust laws are robustly enforced to protect consumers from anti-competitive mergers that could further exacerbate the financial strain we already feel in the grocery store checkout aisle."

Albertsons has responded that, to the contrary, the larger company will be stronger and benefit everyone.

"Our planned combination with Kroger will provide significant benefits to consumers, associates, and communities and offers a compelling alternative to larger and non-union competitors," Albertsons said in a statement.

The payout and the lawsuits are expected to be just the first battle in what could be an extended war over the deal.

"Private equity firms have a long track record of being extractive -- that is, extracting wealth from their portfolio companies," said Carter Dougherty, spokesman for the Americans for Financial Reform, which advocates for regulation of private equity.

"When you see Cerberus shaking $4 billion out of a company in a difficult industry like groceries, it's not out of bounds to say this is yet another episode of industry abuses," Dougherty said.

Information for this article was contributed by Peter Whoriskey of The Washington Post and staff of The Associated Press.

Print Headline: Grocery chain’s dividend blocked

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