D.C. AG urges full review of Kroger-Albertsons merger before special dividend

The attorney general for the District of Columbia reiterated his call for a full review of the Kroger-Albertsons merger before a planned $4 billion special dividend payment by Albertsons in connection with the transaction.

D.C. Attorney General Karl Racine (D.) on Friday filed a joint status report in U.S. District Court after King County Superior Court in Washington state granted a motion by Washington AG Bob Ferguson (D.) for a national temporary restraining order (TRO) to halt the Albertsons dividend payment. The TRO blocks the payment of the special dividend until at least Nov. 10. A decision on the TRO is slated for Nov. 7.

In his Nov. 4 status report filing, Racine contends a planned hearing on the TRO by Nov. 7 isn’t needed.

“Plaintiffs do not believe that a hearing on their TRO motion is necessary,” Racine’s filing said. “Plaintiffs will move for a preliminary injunction after the court’s ruling on the TRO, and a hearing in conjunction with that motion will be more useful for the court. If the court wishes to hold a hearing, plaintiffs propose that it occur on Nov. 10. Holding a hearing any earlier is unnecessary given that the Washington state court has enjoined payment of the special dividend at least until then.”

As part of the Kroger-Albertsons merger transaction, Boise, Idaho-based Albertsons planned to pay its shareholders a special cash dividend of $6.85 per share, totaling about $4 billion, on Nov. 7.

Related:Court halts Albertsons’ $4B dividend payment under Kroger merger deal

Racine’s filing stated that the TRO granted in Washington indicated the state “was substantially likely to prevail on the merits of its claim that the agreement between Albertsons and Kroger to pay the special dividend was an unreasonable restraint of trade.”

On Friday, Racine said he will move for a preliminary injunction to stay in effect and continue to enjoin the dividend payment until the D.C. AG’s office completes its review of the merger deal, expected to take one year. The next steps, he said, will be for the U.S. District Court judge to rule on the disagreements in the status report between the D.C. office and Albertsons-Kroger and determine a schedule for the TRO.

“It’s encouraging that a judge in Washington state temporarily stopped the massive $4 billion payout to Albertsons’ shareholders,” Racine said in a statement. “We’re continuing the fight to stop this cash grab that could come at the expense of workers’ jobs and families’ access to affordable groceries at a time of already increased costs.”

Organized labor also has called for the dividend payment to be stopped. United Food and Commercial Workers Local 770 said grocery workers at Albertsons- and Kroger-owned stores in Los Angeles, Thousand Oaks and Irvine, Calif., on Monday will hold simultaneous actions to urge Albertsons to halt the $4 billion dividend payment to shareholders. Reps. Katie Porter (D., Calif.) in Irvine and Jimmy Gomez (D., Calif.) in Los Angeles also are slated to participate.

Related:Two Attorneys General suing Kroger, Albertsons to halt $4B shareholder handout

“Paying out $4 billion in cash, including $1.5 billion in new debt, will cripple Albertsons’ ability to operate its stores. Thousands of essential grocery workers are threatened. Groceries will be more expensive and scarce for millions of families. Communities will be hurt,” Los Angeles-based UFCW Local 770 stated on Monday. “The so-called ‘special dividend’ will only enrich the private equity firms that own Albertsons’ stock. Once this dividend is paid out, it will be impossible to recover.”

Ferguson and the AGs of D.C., California and Illinois last week had filed suit to halt the Albertsons dividend payment pending a full review of the $24.6 billion Kroger-Albertsons merger deal, announced Oct. 14, by state and federal regulators.

The lawsuits came after a letter sent late last month to Albertsons CEO Vivek Sankaran and Kroger CEO Rodney McMullen urging them to stop the dividend payment. The letter — signed by Ferguson, Racine and state AGs Mark Brnovich (R.) of Arizona, Rob Bonta of California (D.), Lawrence Wasden (R.) of Idaho and Kwame Raoul (D.) of Illinois — asked Albertsons to respond by Oct. 28. Idaho AG Lawrence Wasden (R.) also reportedly called on Albertsons to delay the dividend. However, the grocer declined to suspend the dividend payment.

Central to the AGs’ actions is the claim that the dividend’s size will hamper Albertsons’ ability to operate and compete during the merger deal’s antitrust review. Kroger and Albertsons have estimated an early 2024 closing for the transaction, pending regulatory approval, but industry observers and Wall Street analysts said the process could take up to two years.

Albertsons has called the TRO suspending the special dividend payment unfounded and noted that it maintains a robust business and healthy finances. “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,” Albertsons said in a Nov. 3 statement.