Washington state AG Bob Ferguson filed a suit to stop the absurd Albertsons $4B special dividend in the Kroger merger.
https://www.atg.wa.gov/news/news-releases/ag-ferguson-files-lawsuit-block-albertsons-paying-4-billion-shareholders-merger
On October 14, 2022, Albertsons and Kroger announced that they had reached an agreement to merge. As part of the merger agreement, Albertsons will issue a $4 billion “Special Cash Dividend” to its stockholders that will be paid in a matter of days—on Monday,
November 7, 2022. This payment is 57 times as large as the most recent regular quarterly dividend announced by Albertsons on October 18, 2022. While the agreement refers to this
dividend as a “Pre-Closing Dividend,” it is better described as a “regardless of closing” dividend because it will be paid to Albertsons’ shareholders regardless of whether the proposed merger is
ever completed.
https://agportal-s3bucket.s3.amazonaws.com/uploadedfiles/Another/News/Press_Releases/Complaint_FINAL.pdf
Albertsons and Kroger, anticipating regulatory scrutiny of their proposed merger, have proposed to address concerns in part by divesting between 100-375 stores in markets where
they overlap to a new Albertsons subsidiary called SpinCo. While the ability of this divestiture to create a viable competitor remains to be seen, in light of Albertsons and Kroger’s claim that their own much larger standalone companies must merge to effectively compete in the grocery industry, there are serious reasons to be skeptical. Washington’s experience with Albertson’s 2014 acquisition of Safeway pursuant to a similar proposal, serves as a cautionary tale for allowing future similar deal structures to proceed. Haggen, the entity that purchased the stores spun off in the deal, was unable to meaningfully compete and declared bankruptcy—allegedly due to Albertson’s actions in overstocked perishable inventory, understocked stable inventory, removed purchased fixtures, provided inaccurate pricing information, cut off advertising, lied
about the merchandising data system, and misappropriated Haggen’s store opening plan. Similar to Albertsons situation now, Haggen was controlled by a private equity firm at that time, which drained its liquidity necessary to operate by paying itself a special dividend when Haggen acquired the spun off stores, draining Haggen of needed operating funds to operate the new stores and crippling Haggen’s ability to obtain new funds through loans. In the end, Albertsons re-acquired many of the stores it had divested to Haggen.
The parallels to the Albertsons-Safeway merger are troubling. Albertsons claims that it will be sufficiently capitalized to pay the Special Dividend, but there is every reason to suspect that—in two years from now—Albertsons will be in the position of arguing to federal and state antitrust enforcers that it is preferable to allow Kroger to purchase its remaining assets because it is a failing firm. The Attorney General’s Office is rightly and deeply concerned that past may be prologue.