Albertsons’ $4B dividend payout temporarily blocked by court

Albertsons will not be allowed to pay its $4 billion shareholder dividend while its planned merger with Kroger is under review, according to a ruling late Thursday by a judge in King County, Washington.

The judge, in granting the temporary restraining order, noted that Albertsons would use 75% of its cash on hand and would borrow $1.5 billion to make the payout. Leaving itself with so few cash reserves would be a detriment to the grocer’s operations, the judge found.

Albertsons had planned to make the payout on Monday.

“Albertsons’ payment of the dividend will impact its ability to compete and impair competition in grocery retail throughout Washington State,” the ruling stated.

In a statement late Thursday, Albertsons said it plans to seek to overturn the ruling as quickly as possible because it was "based on the incorrect assertion" that a payout would impair the grocer's ability to compete while its merger plans are reviewed. 

Albertsons said it would have $3 billion of liquidity, even after the payout. 

"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," the company said in a statement. "The company’s plan to return capital to stockholders is part of its long-stated capital-return strategy and does not change the fact that Albertsons Cos. is in the strongest financial position it has ever been."

On Wednesday, the attorneys general of Washington, D.C., California and Illinois filed a lawsuit in the U.S. District Court for the District of Columbia, seeking to bar Albertsons from making the $4 billion payout.

Those lawsuits came one day after Washington’s attorney general filed a similar lawsuit, seeking the temporary restraining order to block the dividend payment, noting that “corporations proposing a merger cannot sabotage their ability to compete while that merger is under review.”

Washington Attorney General Bob Ferguson, in a statement Thursday, called the King County Superior Court commissioner’s ruling a “huge victory.”

“Putting the brakes on this $4 billion payment is the right thing for Americans shopping at their local grocery store,” Ferguson said.

A hearing will be held on Nov. 10 in King County to determine whether the payout should remain on ice while Ferguson’s lawsuit makes its way through the court.

Boise-based Albertsons had previously called the lawsuit “meritless” and said it lacked a legal basis to postpone the payout.

Late last month, Ferguson teamed up with a half dozen attorneys general from around the country to urge Albertsons to hold off on paying the shareholder dividend until states complete their review of the proposed merger with Kroger.

A merger of Kroger and Albertsons would create a grocery giant with nearly 5,000 stores and more than 700,000 employees. Albertsons alone operates more than 2,200 stores in 34 states, under banners such as Albertsons, Safeway, Vons, Jewel-Osco, Acme, Tom Thumb and more.

Cincinnati-based Kroger is the country’s second-largest grocer, by market share, behind Walmart. And Boise-based Albertsons ranks fourth, behind Costco. Combined, the new company would come closer to competing with retail giant Walmart.

Anticipating antitrust review, the companies said they are prepared to establish a subsidiary called SpinCo that would operate as a standalone public company with between 100 and 375 stores that had been divested in areas of overlapping retail operations.

UPDATE: This story has been updated with a comment from Albertsons.