By Sabrina Willmer
Albertsons Cos. should suspend payment of a $4 billion dividend to shareholders while a pending merger with Kroger Co. is considered, Washington, DC, Attorney General Karl Racine said on behalf of a bipartisan group of attorneys general .
The dividend “could be a huge, inappropriate giveaway for some shareholders,” Racine said on CNBC’s Squawk Box on Wednesday, announcing that the AGMs had asked Albertsons to hold the payout. With less cash available, the grocery chain would struggle to compete in what is already a “very, very tough market” if Kroger’s planned takeover of Albertsons stalls, he said.
Albertsons announced the dividend after agreeing to merge with Kroger in a deal valued at $24.6 billion. Racine said he was concerned the merger would hurt competition and raise prices. If Albertsons does not voluntarily halt the dividend payment, the AG’s office could seek a court injunction, Racine said.
On Wednesday, Racine and the attorneys general of Arizona, California, Idaho, Illinois and Washington State sent a letter with their request to the chief executives of Albertsons and Kroger. They said the merger could impact consumers already hurt by inflation, as well as the wages of hundreds of thousands of employees.
“We will, of course, review the entire merger,” Racine said during the CNBC interview.
Colorado Attorney General Phil Weiser said he shared concerns about Albertsons’ expected $4 billion dividend payment in light of the proposed merger. “The timing of this dividend is debatable and I join other attorneys general in asking Albertsons to delay this dividend payment while the merger is under review,” he said in a statement.
Weiser said his department is monitoring the possible merger of Albertsons, which operates Safeway stores, and Kroger, the parent company of King Soopers and City Market stores in Colorado. He said the possibility of “undue consolidation in the grocery sector” raises serious concerns due to the large corporate footprint in the state and the potential impacts on consumers and employees.
In a statement, Albertsons supported the merger and payment plans. “After the dividend payment, Albertsons Cos. will continue to be well capitalized with a low debt profile and strong free cash flow,” the company said. “Given our financial strength and positive business outlook, we are confident that we will maintain our strong financial position as we work to close the merger.”
A Kroger spokesperson did not respond to a request for comment.
The move by Racine and his counterparts presents a twist in what has been a long ownership journey for Cerberus Capital Management, which paid $350 million in 2006 for Albertsons. Cerberus, the grocery giant’s biggest investor, is expected to make more money from an already profitable deal with the proposed merger price valuing its remaining stake at $5.2 billion.
A Cerberus spokesperson declined to comment.
The proposed combination would create a grocery business with nearly 5,000 stores and annual revenue of about $200 billion. This would have increased buying power and the opportunity to save on costs, as brick-and-mortar retailers invest heavily to improve their online offerings.
A key impetus for the deal is giving Kroger entry into the northeast, completing its national footprint. In the overlapping areas, the companies plan to unload up to 375 stores through a spin-off if they cannot find buyers for them.
The two pledged to use $500 million of the savings generated from the merger to lower prices for consumers. Overall, according to Kroger and Albertsons, they will realize about $1 billion in annual savings in the first four years after the deal closes, post-divestments, through improved procurement, technology investments and the optimization of manufacturing and distribution networks.
The merger “will bring significant benefits to consumers, associates and communities and provide a compelling alternative to larger, non-union competitors,” Albertsons said in the release Wednesday.
Two US senators said last week they would hold a hearing in November on the deal’s impact on competition between grocery stores.
– Denver Post reporter Judith Kohler contributed to this story.