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AG files suit to block $4 billion pre-merger payout to Albertsons' shareholders

caption: Washington state Attorney General Bob Ferguson looks on during a news conference in Seattle on Dec. 17, 2019.
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Washington state Attorney General Bob Ferguson looks on during a news conference in Seattle on Dec. 17, 2019.

Washington Attorney General Bob Ferguson filed a lawsuit Tuesday to prevent Albertsons from paying $4 billion to its shareholders before a proposed merger with Kroger can be reviewed by state and federal regulators.

Ferguson said the “special dividend” payment would undercut Albertsons’ ability to compete during the time government regulators are scrutinizing the proposed merger.

The lawsuit, filed in King County Superior Court, will be followed by a temporary restraining order, which, if granted, would prevent Albertsons from making the dividend payment until the lawsuit is settled. A hearing on the restraining order is expected later this week.

Last month, Kroger announced plans to buy Albertsons for $20 billion. Part of that deal included the $4 billion payout to Albertsons’ shareholders, which was scheduled to occur Nov. 7.

But last week, a bipartisan group of attorneys general from six states asked Albertsons to delay the pre-merger payout until a review could be completed. They say the payout, which amounts to almost a third of Albertsons’ market value, would impede the company’s ability to remain competitive while the merger is under review.

If approved by the Federal Trade Commission and the Department of Justice, the merger of the two grocery giants is expected to close in early 2024.

Albertsons and Kroger operate more than 300 stores in Washington, including 80 in the Seattle area. Albertsons has groceries under its own name as well as Safeway and Haggen. Kroger owns Fred Meyer and QFC. Nationwide, the two companies have almost 800,000 employees and close to 5,000 stores across 48 states and the District of Columbia.

Ferguson’s lawsuit points out that, although Albertsons is publicly traded, a large portion of its stock is controlled by a private equity consortium, Cerberus Capital Management, which bought Albertsons in 2006. The firm helped finance the 2015 purchase of the Safeway chain and took Albertsons public in 2020.

According to Ferguson's suit, “paying out $4 billion will mostly benefit this private equity consortium, which controls Albertsons.”

In a press release, the attorney general said the payout could reduce grocery inventories and impact Albertsons’ workers over the next year.

“Paying out $4 billion before regulators can do their job and review the proposed merger will weaken Albertsons’ ability to continue business operations and compete,” Ferguson said. “Free enterprise is built on companies competing, and that competition benefits consumers. Corporations proposing a merger cannot sabotage their ability to compete while that merger is under review.”

In a statement announcing the proposed merger, Albertsons assured consumers the company was in a strong financial position, with $29 billion in assets and $3.4 billion in cash on hand.

“We are confident that we will maintain our strong financial position as we work toward the closing of the merger,” the statement said.

According to Ferguson’s lawsuit, Albertsons would pay for the dividend with $2.5 billion of its cash and borrow the remaining $1.5 billion.

“The impact of the payout on Albertsons’ liquid assets is alarming,” the lawsuit states. “It will reduce Albertsons cash on hand by almost 75%.”

In a separate move, Senators Patty Murray and Maria Cantwell expressed concerns about the merger's negative impacts on Washington customers and workers. In a letter to the Federal Trade Commission the senators called for a thorough investigation of the proposed transaction.

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