The mega-merger between the second- and fourth-largest grocery retailers has drawn criticism from multiple state lawmakers who argue that the deal is creating an anti-competitive monopoly in the US grocery market, giving it leverage to raise prices and consolidate its workforce negatively impacting both workers and consumers.
Multiple state attorneys general filed a joint suit* taking aim at the "unusual" $4bn special dividend payout to Albertsons' investors as part of the deal (originally scheduled to be paid on Nov. 7, 2022). The suit claimed that the amount is 57 times as large as the most recent quarterly dividend issued by Albertsons in October 2022, raising alarm bells among state lawmakers opposed to the deal.
In order to pay shareholders the dividend, Albertsons would need to use 75% of its liquid assets and borrow $1.5bn, claimed the Washington State AG's office.
In its motion for a temporary restraining order, it said, "Albertsons and Kroger are direct competitors that collectively own and operate almost 350 grocery stores in Washington State. Albertsons' payment of the dividend will impact its ability to compete and impair competitors in grocery retail through Washington State."
The restraining order was granted, temporarily restraining Albertsons from issuing its pre-closing special dividend to shareholders until Nov. 10, 2022, when a motion for a preliminary injunction will be heard.
"By eliminating its cash-on-hand and nearly doubling its debt, Albertsons will be in a weakened competitive position relative to Kroger, thereby harming grocery consumers and workers throughout Washington," said State Court Commissioner Henry Judson.
Albertsons seeks to overturn restraining order
"Albertsons Cos. intends to seek to overturn the restraint as quickly as possible because the temporary order was based on the incorrect assertion that payment of the Special Dividend would impair its ability to compete while its proposed merger with The Kroger Co. is under antitrust review," said Albertsons in a statement.
Addressing the arguments by AGs that the company would be left in a weakened financial state following the dividend payout, Albertsons called the claims "meritless and provide no legal basis for canceling or postponing a dividend that has been duly and unanimously approved by Albertsons Cos."
"Albertsons Cos. is a thriving business which has delivered over $75bn in revenues in the rolling four quarters ended September 10, 2022, following strong performance of $71.9bn in revenues in fiscal 2021. Albertsons Cos. is well-capitalized, with limited debt and significant free cash flow and is in a strong position financially. The size of the dividend reflects the Company’s strength, rather than the illogical and damaging accusation that it is an attempt to weaken the Company," the company continued.
"Albertsons Cos. intends to argue vigorously based on the factual record that there is simply no basis to continue restraining the payment of the Special Dividend."
*District of Columbia office of attorney general et al v. Kroger co. et al, case number 1:22-cv-03357
Speaking to FoodNavigator-USA last week about the merger of Kroger and Albertsons, Dr. James Richardson, author of the Amazon best-seller Ramping Your Brand and founder of consultancy Premium Growth Solutions, said that there still would be plenty of competition between supermarket chains and that the deal could potentially benefit consumers with lower pricing.
"This merger hardly gives them a monopoly in supermarket channel share. If anything, I think Americans will benefit from constrained private-label pricing due to the new company's much larger buying power," claimed Richardson.