By Renée Jean, Business and Tourism Reporter
Lawmakers are skeptical of a mega-merger between Kroger and Albertsons that marries two giants of the grocery store industry into one super chain that would controls one-fifth of the nation’s food supply.
They may soon be the only thing that stands between the proposed $25 billion merger, which Wyoming critics have said will widen food deserts in the Cowboy state, as well as risk the jobs and retirements of hundreds of Wyoming’s 750 grocery store workers.
A King County, Washington, judge has ruled that Albertsons’ $4 billion special dividend to shareholders will not so weaken the company that it will hamper the grocery chain’s ability to compete absent a merger.
That’s despite the fact Albertsons will use $1.5 billion in credit to issue the special dividend ahead of selling out to Kroger.
Judge: Still Plenty Of Cash
Seattle-area Judge Ken Schubert noted in his ruling that the payout still leaves Albertsons with $500 million in cash on hand as well as $2.6 billion in its line of credit.
“The testimony of respective chief financial officers of Albertsons and Kroger, supported by the analysis of their financial advisors, establishes that Albertsons generates significant free cash flow, will continue to do so, and will also continue to be able to meet all of its capital and operational needs, even after the payment of the special dividend,” the judge wrote.
Schubert also noted that Albertsons began internal discussion of returning capital to shareholders in 2021, while records suggest Kroger did not express interest in acquiring the company until June 2022, almost a year later. Those negotiations recognized all along Albertsons’ intent to issue a special dividend.
“Kroger negotiated to limit the size of the special dividend to $4 billion,” Schubert wrote. “The parties did not agree that Albertsons would issue that special dividend, nor did Kroger require Albertsons to do so. Kroger merely acquiesced to allow Albertsons to issue a special dividend if Albertsons, unilaterally, decided to do so.”
No Antitrust Laws Violated
Kroger’s agreement with Albertsons also accounts for the impact of that disbursement on Albertsons’ value, dollar for dollar, the judge added, concluding that nothing about the special dividend violates antitrust laws, as had been alleged by Washington Attorney General Bob Ferguson.
While the state failed to establish any of the factors necessary for the preliminary injunction it had requested, Schubert did extend his temporary restraining order to Dec. 19 to give Ferguson time to file an appeal.
Cowboy State Daily has reached out to Ferguson’s office for a statement about the ruling and whether he will appeal but hadn’t received a response by the time this story posted.
Albertsons, meanwhile, praised the ruling and said it continues to await a decision in the Washington, D.C., case, where a preliminary injunction has been requested as well.
“Albertsons Cos. continues to believe that the claim brought by the Attorney General of the State of Washington, and the similar lawsuit brought by the Attorneys General of California, Illinois, and the District of Columbia, is meritless and provides no legal basis for preventing the payment of a dividend that has been duly and unanimously approved by Albertsons Cos.’ Fully informed board of directors,” the company said in a statement to Cowboy State Daily.
One Less Obstacle
The result in the state of Washington case does not bode well for a parallel effort in federal court in Washington, D.C., filed by the attorneys general of California, Illinois and Washington, D.C.
That case made similar allegations to those in the state of Washington case, and also asked for a preliminary injunction to stop the dividend payout until after the merger has undergone regulatory review.
Colorado, meanwhile, also is investigating the merger and filed an amicus brief in the state of Washington case, arguing against the dividend payout.
Amid these legal cases, lawmakers have been holding hearings about the merger and clearly expressed skepticism that the deal is good for consumers.
At the same time, the FTC has requested additional information for its regulatory review of the proposed merger, according to several media reports.
The federal agency under the Biden administration has signaled tougher enforcement of antitrust laws, following an executive order from the President that seeks to crack down on further corporate consolidation.
More Job Losses, Food Deserts
To pass regulatory requirements related to competition, Albertsons and Kroger have proposed divesting up to 375 stores in a spinoff called Spinco.
That’s a song UFCW Local 7 President Kim Cordova says should sound familiar, because it was the same melody sung during the Albertsons-Safeway merger in 2014.
Lower prices and higher wages were promised then, too, Cordova said, but that’s not what happened. Instead, hundreds of workers lost jobs and retirements, while food deserts widened.
She believes the map that Albert-Krogerson has released on a combined webpage about the merger tells the story in a glance.
“(It) shows you how concentrated and how many stores overlap in the Western part of the U.S.” she told Cowboy State Daily when the merger was announced. “I mean, Southern California, (Colorado), Wyoming, New Mexico, Arizona, Texas — Safeway and Albertsons control the market and Kroger, in some of our areas throughout both states, they control almost 100 percent of the grocery store market.”
The spinoff, meanwhile, is just company spin, Cordova believes, to get the deal past federal regulators and antitrust laws.
“They’re not going to let that competitor thrive,” she said, pointing out that some of those stores are located in the same parking lot. “They sell them a lemon, basically.”
That leaves the spin-off headed for almost certain bankruptcy. In fact, that is what happened when Albertsons took over Safeway, Cordova said. Albertsons sold 168 locations to Haggen Foods and Pharmacy, and they were bankrupt less than a year later.
Hundreds of grocery store workers lost jobs and retirements, Cordova said. The USDA map of food deserts, meanwhile, does show food deserts widened in Wyoming in 2019 versus 2015.