Washington AG appeals to block Albertsons’ $4B dividend

Washington Attorney General Bob Ferguson has appealed to the state’s Supreme Court in an effort to block a $4 billion dividend that Albertsons Cos. is planning to pay to its shareholders.

“We’re going to be taking this critical issue directly to the state Supreme Court,” Ferguson said in a statement issued Friday, after a judge in a lower state court ruled that there was no reason to delay the payment.

Washington, which is supported in its suit by an amicus brief filed last week by the Colorado attorney general, argues that the payout would weaken Albertsons’ ability to compete against Kroger as its proposed merger with that company proceeds.

The United Food and Commercial Workers union also opposes the dividend, and a similar appeal is proceeding at the federal level in a lawsuit by the attorneys general of California, Illinois and Washington, D.C. That suit is also pending appeal after a lower federal court ruled on Dec. 1 that the dividend payment could proceed.

The dividend payment would be made using $2.5 billion in cash, with the rest to come from borrowings, according to Securities and Exchange Commission filings.

In its appeal to the Washington Supreme Court, Ferguson argues that the payout would leave Albertsons with “only $500 million in cash “and could force it to borrow money to cover its cash flow needs at a time when interest rates are high.

Related:Colorado leads multistate investigation into Kroger-Albertsons merger

Albertsons, meanwhile, said a payout to shareholders had been planned before the announced merger.

“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,” Albertsons said in a statement.

As previously reported, Albertsons declared the special dividend in conjunction with the merger announcement. It would reward stockholders of record as of Oct. 24 with a one-time cash dividend of $6.85 per share and was scheduled to be paid on Nov. 7. Kroger had agreed that Albertsons was free to make the payment, provided the total value was limited to $4 billion, according to court filings.

In testimony last month before a U.S. Senate subcommittee on the proposed merger, Vivek Sankaran, CEO of Albertsons, said the payment was planned as the first major return of capital to shareholders since the company’s return to the public markets via an initial public offering in 2020.

Related:Senators grill Kroger, Albertsons CEOs on merger

“Returning capital to shareholders is a key component of our growth strategy and our ability to attract investors, so that we can continue to invest in our business and employees,” he said at the time.

Albertsons’ largest shareholder is Cerberus Capital Management, which owns 28.37% of shares, followed by Lubert-Adler Management Co., which owns 10.86%.

“While we are currently unable to pay the dividend due to litigation, we intend to pay it as soon as possible without regard to whether the merger closes,” Sankaran said at the hearing.

He added that Albertsons was in excellent financial condition and that the payment would not impact its ability to invest in its workers, its stores, or its planned objectives.

“After paying the dividend, we will have approximately $3 billion of liquidity, and we expect to continue generating strong revenues and positive free cash flow,” Sankaran said.