WA AG slams Albertsons' $4 billion dividend ahead of Kroger merger

WA AG slams Albertsons’ $4 billion dividend ahead of Kroger merger

Barely a week after Albertsons and Kroger announced a massive and “messy” grocery store merger, a plan by Albertsons to pay investors a $4 billion dividend is drawing increasing criticism from investors. buyers, workers and state officials, including Washington State Attorney General Bob Ferguson.

Ferguson joined his counterparts in four other states and the District of Columbia in a letter on Wednesday urging Albertsons, owner of Safeway, and Kroger, owner of QFC and Fred Meyer, to delay the $4 billion dividend.

The letter was written by DC Attorney General Karl Racine on behalf of the District of Columbia, Arizona, California, Idaho, Illinois and Washington. Brionna Aho, spokeswoman for the Washington state attorney general’s office, also confirmed on Wednesday that the office would review the merger.

In the letter, Racine called the $4 billion dividend potentially “a huge, inappropriate giveaway to certain shareholders” that could hurt the performance of Albertsons stores in “a very, very difficult market.”

The letter notes that the proposed $4 billion dividend, which was hidden in the merger announcement, is roughly equal to the total funds Albertsons said it had on hand in its latest financial report, and goes on to imply that making this payment “deprives Albertsons of the cash it needs to operate competitively.”

That’s a major concern among watchers of the more than $20 billion merger.

Some critics believe the merger could lead to higher consumer prices and job losses as the merged companies seek to boost profits by cutting costs.

There are also fears the deal could lead to the closure of some of the hundreds of overlapping locations in Kroger and Albertsons that the two retailers will be required to sell in order to gain regulatory approval.

These closure fears are particularly high in the Seattle area, where retailers have an unusually high number of stores, sometimes within a mile of each other.

A $4 billion payout “puts us all at risk of not having jobs or having to close stores because without capital, how are they going to buy the products we sell on the shelves?” said Kyong Barry, a South Auburn Safeway worker and member of UFCW Local 3000, which represents nearly 26,000 workers at 265 Kroger and Albertsons locations in Washington.

That fear is echoed by Seattle resident Leo Griffin, a Safeway regular, and Fred Meyer at Ballard. Griffin worries that such a massive payout will mean local Safeways badly in need of upgrades will be even less likely to get them.

“It just seems like they’re trying to squeeze money out of the deal that could benefit others later…especially at some of these stores [where] people want to invest more,” said Griffin, who was already concerned that a merger would close local stores, much like happened following the 2015 merger between Albertsons and Safeway.

In the letter, Racine said he would seek a court injunction blocking the payment if Albertsons did not do so voluntarily, but it was not immediately clear whether the District of Columbia or individual states had the authority to block such payment. . The letter asked Albertsons to respond by Friday to find out if he would reverse the payment.

In an emailed statement, a spokesperson for Albertsons insisted that even after paying the dividend, Albertsons “will continue to be well capitalized with a low debt profile and free cash flow. Given our financial strength and positive business outlook, we are confident that we will maintain our strong financial position as we strive to complete the merger.”

It was unclear Wednesday exactly what legal authority the states might use to stop the payment.

It was also unclear how likely Albertsons were to stop the payment. Cerberus, which bought Albertsons in the early 2000s and merged it with Safeway in 2015, has long reportedly wanted out of the business, of which it still owns nearly a third, in part to satisfy its own investors.

That final exit could come through a merger with Kroger, but the deal is expected to take years to get approval from federal regulators or a federal judge if regulators reject the deal and companies take the merger to court.

Several industry analysts think the latter scenario is increasingly likely.

“While Kroger and Albertsons believe they will obtain the required regulatory approval, we believe they will face a steep climb from antitrust regulators and Congress,” wrote Arun Sundaram, an equity analyst at CFRA who covers retail trade.

A big strike against soft approval, Sundaram notes, is the “Albertsons-Safeway merger debacle of 2015 where [some] the divested stores were eventually acquired by Albertsons.

Given the likelihood of the merger being delayed, the $4 billion dividend is likely intended to “appeal to existing investors in Albertsons and [keep] they’re nice to the deal,” notes Jeff Green, a retail analyst at Hoffman Strategy Group who tracks the Seattle market.

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