By Renée Jean, Business and Tourism Reporter
A judge has blocked the payment of a $4 billion dividend to Albertsons shareholders ahead of a proposed mega-merger with Kroger, which has a union coalition that includes representatives for Wyoming grocery store workers cheering.
Commissioner Henry Judson of King County Superior Court in Washington state has issued a temporary restraining order prohibiting payment of the dividend through Nov. 10, when case is set to be heard by Judge Ken Schubert.
In his order, Judson said he believes the case filed by Washington Attorney General Bob Ferguson is likely to succeed on the merits.
Washington and other states are challenging the dividend, claiming it’s a ploy to make the Federal Trade Commission look more favorable on approving the merger of two of America’s largest grocers.
The $24.6 billion deal would merge two U.S. grocery giants into a behemoth of nearly 5,000 stores. In Wyoming, dozens of stores would be affected.
“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,” Judson wrote. “Once Albertsons distributes the dividend to shareholders the money will be irrecoverable, and Plaintiff will be unable to carry out its constitutionally mandated statutory duty to protect commerce and consumers in the state of Washington.”
Sam Kantak, acting as spokesman for several UFCW Locals, including Local 7 that represents Wyoming and Colorado grocery store workers, said the case is critical to the future of thousands of grocery store workers.
“The dividend would cripple Albertsons’ ability to operate its stores, threatening the jobs of thousands of essential grocery store workers and making groceries more expensive and scarcer for millions of families,” Kantak said. “We’re proud Attorney General Ferguson took leadership in acting to stop Albertsons from robbing our communities to pay its private equity shareholders.
“Albertsons should be lowering prices for hard-working people and investing in essential grocery store workers instead of handing billions of dollars of the company’s cash over to pad executives’ pocketbooks.”
Ferguson’s lawsuit, filed Tuesday, followed a letter from six state attorneys general urging Albertsons to delay paying the special dividends until regulators have reviewed and approved the proposed merger.
Albertsons refused to comply with the request, prompting Ferguson’s suit, which was filed Tuesday in Washington. A day later, attorneys general from California, Illinois and Washington, D.C., filed a similar lawsuit in federal court, outlining many of the same issues.
A Loan To Pay Out Dividend
The dividend payout would use up almost 75% of Albertson’s available cash and also would include a sizable loan, Ferguson wrote in his claim.
“Surprisingly, Albertsons plans to pay $4 billion not from its surplus profits, but rather out of critical operating margins it needs to stay afloat over the next 12 months,” Ferguson wrote. “Albertsons publicly disclosed that it will use $2.5 billion in cash on hand and will finance the remaining $1.5 billion through loans.”
With already low credit and liquidity ratings, the moves did not play well with credit-rating agencies, Ferguson added.
“In further downgrading Albertsons’ non-investment grade liquidity rating on Oct. 14, 2022, Moody’s noted that it reflected ‘Albertsons lower cash balances and reduced revolver availability following payment of the dividend,’” Ferguson wrote.
The moves make it harder for Albertsons to get loans, Ferguson suggested, which the store may need to maintain and expand infrastructure, stock shelves and pay employees.
A Lot Of Spin
Ferguson was also very critical of the proposed Spinco spin-off chain that would be created in the proposed merger, where 100 to 375 stores would be divested to meet regulatory concerns about competitiveness in the sector.
“While the ability of this divestiture to create a viable competitor remains to be seen, in light of Albertsons and Kroger’s claim that their own much larger standalone companies must merge to effectively compete in the grocery industry, there are serious reason to be skeptical,” Ferguson says in his claim, adding that the last time a similar move was undertaken by Safeway in a previous merger, the subsidiary went bankrupt.
This led to more store closures and worker layoffs, as well as less choice for consumers and food deserts — not the lower prices and better wages promised at the time.
Albertsons Will Fight Decision
Albertsons, meanwhile, has told Cowboy State Daily the payout is a “strategic alternative” to “enhance growth and maximize shareholder value.”
On Friday, the company criticized the ruling in an email to Cowboy State Daily and said it will seek to overturn it as quickly as possible.
“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,” the statement reads. “Albertsons Cos. continues to maintain that the lawsuit brought by the State of Washington, and the similar lawsuit brought by the Attorneys General of California, Illinois and the District of Columbia are meritless and provide no legal basis for canceling or postponing a dividend that has been duly and unanimously approved by Albertsons Cos.’ fully informed Board of Directors.”
Denies Financial Claims
The statement goes on to assert that the company is very strong financially and won’t be hurt by the payout.
“Albertsons Cos. Is a thriving business, which has delivered over $75 billion in revenues in the rolling four quarters ended Sept. 10, 2022, following strong performance of $71.9 billion in revenues in fiscal 2021,” the statement said. “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.”
After the special dividend is paid, the company will still have $3 billion in liquidity, including $500 million cash on hand and $2.5 billion in an exist asset-based lending facility, according to the company.
“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,” the statement concludes.