WA AG slams $4B dividend by Albertsons ahead of Kroger merger

Barely a week after Albertsons and Kroger announced a massive and “messy” grocery merger, a plan by Albertsons to pay investors a $4 billion dividend is drawing more fire from shoppers, workers and state officials, including Washington state Attorney General Bob Ferguson.

Ferguson on Wednesday joined counterparts in four other states and the District of Columbia in a letter urging Albertsons, which owns Safeway, and Kroger, which owns QFC and Fred Meyer, to delay the $4 billion dividend.

The letter was penned by DC Attorney General Karl Racine on behalf of the District of Columbia, Arizona, California, Idaho, Illinois and Washington. Brionna Aho, a spokesperson for the Washington state Attorney General’s Office, also confirmed Wednesday that the office will be reviewing the merger.

In the letter, Racine characterized the $4 billion dividend as potentially “a massive improper giveaway to certain shareholders” that might undermine the performance of Albertsons stores in “a very, very tough marketplace.”

The letter notes that the proposed $4 billion dividend, which was tucked in the merger announcement, is roughly equal to the total funds Albertsons reported having on hand in it latest financial report, and goes on to imply that to make that payment “deprives Albertsons of the cash it needs to operate competitively.”

That’s a key concern among observers of the $20-plus billion merger.

Some critics think the merger might result in higher consumer prices and job losses as the merged companies seek to raise profits by trimming costs.

There are also concerns the deal could result in the closures of some of the hundreds of overlapping Kroger and Albertsons locations that the two retailers will be required to sell in order to win regulatory approval.

Those closure fears are especially high in the Seattle area, where the retailers have an unusually large number of stores, sometimes less than a mile from each other.

A $4 billion payment “basically puts us all in danger of either not having jobs or having them to close stores because with no capital, how are they going to buy the products that we sell on the shelf?” says Kyong Barry, a worker at the South Auburn Safeway and a member of UFCW Local 3000, which represents nearly 26,000 workers at 265 Kroger and Albertsons locations in Washington.

That fear is echoed by Seattle resident Leo Griffin, a regular at the Safeway and Fred Meyer in Ballard. Griffin worries that such a massive payment could mean that local Safeways sorely in need of upgrades will be even less likely to get them.

“It just seems like they’re trying to pull money from the deal that could benefit others later … especially in some of those stores [where] people wish that they would invest more,” said Griffin, who was already worried that a merger would lead to local store closures, much as happened in the wake of the 2015 merger between Albertsons and Safeway.

In the letter, Racine said he would seek a court injunction blocking the payment if Albertsons didn’t do so voluntarily, but it was not immediately clear whether the District of Columbia or individual states have the authority to block such a payment. The letter asked Albertsons to respond by Friday as to whether it will cancel the payment.

In an emailed statement, an Albertsons spokesperson insisted that even after paying the dividend, Albertsons “will continue to be well capitalized with a low debt profile and strong free cash flow. 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.”

It wasn’t clear Wednesday exactly what legal authority the states might use to halt the payment.

Nor was it clear how likely Albertsons is to halt the payment. Cerberus, which bought Albertsons in the early 2000s and merged it with Safeway in 2015, reportedly has long wanted to exit the company, which it reportedly still owns nearly a third of, in part to satisfy its own investors.

That final exit could happen through a merger with Kroger, but the deal is expected to take years before it wins approval either from federal regulators or from a federal judge if regulators reject the deal and the companies take the merger to court.

Several industry analysts think the latter scenario is increasingly likely.

“While Kroger and Albertsons believe they will obtain the required regulatory approval, we think they will face a steep uphill climb from both anti-trust regulators and Congress,” wrote Arun Sundaram, an equity analyst with CFRA who covers retail.

One big strike against smooth approval, Sundaram notes, is the “2015 Albertsons-Safeway merger debacle where [some] divested stores were eventually repurchased by Albertsons.”

Given the likelihood the merger will be delayed, the $4 billion dividend is likely meant to “please the existing investors of Albertsons and [keep] them sweet on the deal,” notes Jeff Green, a retail analyst with Hoffman Strategy Group who follows the Seattle market.

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