Kroger/Albertsons: Albertsons Responds to Request to Delay Dividend

Albertsons has rejected a request by several state attorneys general (AG) to hold off on a special dividend payment totaling nearly $4 billion to stakeholders, stating the dividend plans were developed prior to potential merger discussions with Kroger and payment cancellations could lead to financial and legal liabilities, as reported in Bloomberg.

On Oct. 14, Kroger announced its “definitive agreement” on a $24.6 billion deal to acquire Albertsons, a move that would bring the country’s two largest grocery chains together. Combined, the two retailers boast more than 710,000 employees in nearly 5,000 stores across 48 states and D.C. On the same day, Albertsons announced a “special cash dividend” slated to go out to shareholders on Nov. 7 at $6.85 per share.

In response, state AGs from the District of Columbia, California, Arizona, Idaho, Illinois and Washington last week sent a letter to Albertsons and Kroger encouraging Albertsons to delay the payout until after the antitrust review process is complete. The signees argued that the $6.85 per share special dividend payments would cost Albertsons nearly one-third ($4 billion) of its $11.9 billion market share, hampering its ability to effectively compete with Kroger until 2024 when the deal is slated to close.

“Healthy and strong competition is an American value that Republicans and Democrats can unite around. Anticompetitive mergers have real impacts on everyday people,” said AG Karl A. Racine in a statement. “We’re deeply concerned about the level of concentration in essential industries, such as grocery stores…while we trust that Albertsons will adhere to our request, we are actively exploring other options to achieve our objectives, including litigation.”

In Albertsons’ response letter obtained by Bloomberg, the grocery chain claimed it is unable to comply with the request to delay payment of the special dividend, as it would expose the grocery chain to “significant” legal and financial liabilities. The grocer added that it is in a strong financial position today and will maintain a strong financial position after the payments.

The Office of the Attorney General was unable to share Albertsons’ response letter and the contents of the letter have not been independently verified by NOSH.

The shared concern among state AGs is that the merger or dividend payments may result in even higher prices and a reduction in high-paying jobs, wages and benefits. According to the state AGs, grocery prices rose 12% within the past year, marking the biggest jump in 40 years.

“An agreement with Kroger that deprives Albertsons of the cash it needs to operate competitively is economically no different than other pre-merger agreements or actions that have limited the output or other business operations of a merging party, leading the federal agencies to act,” the letter reads.

Albertsons disputed these claims in its response letter to state AGs, noting that both retailers will allocate $500 million in savings from the combination to lowering prices, $1 billion to improving stores and $1 billion to raising employee wages and benefits, as reported in Bloomberg.*

If it comes to fruition, the Kroger/Albertsons merger would mark the single largest shift in the grocery industry for emerging and entrepreneurial brands since Amazon purchased Whole Foods in 2017.

As the merger is not expected to close until 2024 and therefore regulatory approval of the merger is “far from assured” state AGs remain hopeful.

“The states must undertake their review review and assure themselves that competition in all relevant antitrust markets at issue is preserved,” the state AGs letter read. “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.”