A bipartisan group of attorneys general is asking Albertsons to delay a $4 billion payout to its shareholders until they can complete a review of Kroger’s planned acquisition of the grocery chain.
Kroger earlier this month announced it was paying $20 billion to buy Albertsons, the parent company of Jewel-Osco. The deal is expected to close in early 2024, if it is approved by the Federal Trade Commission and the Department of Justice, and survives any court challenges.
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The merger agreement included a special dividend of up to $4 billion — or $6.85 per share — that Albertsons is scheduled to pay its shareholders on Nov. 7.
In an open letter sent to Albertsons this week, six attorneys general said the dividend — which equals nearly one-third of Albertsons’ $11 billion market value — would deprive the company of the cash it needs to operate while regulators review the merger.
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The letter also said it’s unclear if the deal will be approved, since federal and state laws forbid mergers that substantially lessen competition. Together, Albertsons and Cincinnati-based Kroger would control around 13% of the U.S. grocery market.
The chains have substantial overlap in several geographic areas, including Chicago. Kroger has 2,750 supermarkets in 35 states, including 44 Chicago-area Mariano’s stores and about 10 Food 4 Less stores. Albertsons has more than 2,200 supermarkets in 34 states, including 188 Jewel stores, most of which are in the Chicago area.
“Should any regulatory challenge to the merger succeed, or should the parties abandon the transaction, Albertsons would have to continue 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,” the letter said.
The letter was signed by the Democratic attorneys general of Illinois, the District of Columbia, California and Washington and the Republican attorneys general of Arizona and Idaho. Albertsons is based in Boise, Idaho.
“The proposed merger between Albertsons and Kroger could severely reduce competition, lead to increased food prices at a time families are struggling to keep up, and worsen food insecurity impacting low-income and minority communities in particular,” Illinois Attorney General Kwame Raoul said in a news release Thursday. “It is imperative that neither company act to potentially affect a merger outcome while state attorneys general continue our review.”
In a statement, Albertsons said the merger announcement and special dividend mark the successful completion of a strategic review begun in February of the company’s future. The company had nearly $29 billion in assets at the end of September, including $3.4 billion in cash and cash equivalents.
“We are confident that we will maintain our strong financial position as we work toward the closing of the merger,” Albertsons said.
The attorneys general asked Albertsons to respond by Friday to its letter. A spokesperson for District of Columbia Attorney General Karl Racine wouldn’t say Thursday if Albertsons had responded because the office doesn’t comment on investigations.
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But Racine said the attorneys general will consider litigation to stop the dividend payment if Albertsons doesn’t agree to a delay. Attorneys general can also sue to block a merger, alone or alongside the Department of Justice, as they did in 2019 when T-Mobile bought its smaller rival Sprint.
Among those who could gain the most from Albertsons’ dividend payment is Cerberus Capital Management, a private equity firm. Cerberus led a consortium of investors that bought Albertsons in 2006. It helped finance Albertsons’ 2015 purchase of the Safeway chain and took Albertsons public in 2020. Cerberus owns nearly 30% of Albertsons shares.
Chicago Tribune contributed.
