California attorney general demands Albertsons delay $4-billion dividend ahead of possible Kroger merger

California Atty. Gen. Rob Bonta and his peers in several other states demanded Wednesday that Albertsons Cos. delay paying a $4-billion dividend to investors until after the company’s merger with rival supermarket chain Kroger Co. is reviewed by the Federal Trade Commission.

This month, Kroger disclosed its $20-billion bid to buy Albertsons — a deal that would combine several chains with a presence in Southern California, among them Ralphs, Pavilions and Vons. As part of the Oct. 14 announcement, Cincinnati-based Kroger said that Albertsons would pay a special cash dividend of up to $4 billion to shareholders of record Oct. 24. It is scheduled to be payable Nov. 7.

The potential combination of the two chains comes as food costs have soared amid rising inflation. The merger has drawn intense criticism, including from United Food and Commercial Workers Local 770 in Los Angeles, which represents 20,000-plus members. On Saturday, Local 770 issued a statement opposing the dividend and calling on elected officials and regulators to halt Albertsons’ payment, which it said would result in the “devaluation of the company at a time when consumers are facing crushing inflation.”

On Wednesday, Bonta and the attorneys general of Arizona, Idaho, Illinois, Washington and the District of Columbia wrote in a letter to the companies’ chief executives that they were dedicated to ensuring that the planned merger “does not result in higher prices for consumers, suppressed wages for workers or other anticompetitive effects.”

Noting that Boise, Idaho-based Albertsons is legally required to continue competing with Kroger while the merger is subject to state and federal review, the attorneys general wrote that “paying a dividend of this size will hamper its ability to meaningfully” do so.

Asked about the letter, a spokesperson for Albertsons, which has 2,273 stores, said in a statement that the company would “continue to be well capitalized with a low debt profile and strong free cash flow” after the dividend payment.

“Our planned combination with Kroger will provide significant benefits to consumers, associates and communities and offers a compelling alternative to larger and nonunion competitors,” said the statement from Albertsons, which owns several grocery store brands, including Vons and Pavilions stores in California.

Kroger, which operates 2,800 stores representing more that two dozen brands — including Ralphs — did not immediately respond to a request for comment.

Southern California, the country’s biggest market for groceries, would probably feel the effects of a merger between Kroger and its smaller competitor in a significant way. With an eye toward overcoming expected political and regulatory issues, the grocery chains have said they would divest some stores. Up to 375 Albertsons locations would be spun off into a separate, publicly traded company, Kroger said Oct. 14.

Bonta and his peers gave Albertsons an Oct. 28 deadline for informing the attorneys general about whether it intends to cancel the dividend and postpone making any such payment until after regulatory review is complete and the deal closes.

If approved, the transaction is expected to close in early 2024, Kroger previously said.

Shares of both companies, which trade on the New York Stock Exchange, had quiet days on Wall Street. Kroger’s stock closed at $45.44, up about 1.5% on the day, while shares of Albertsons fell 1.3% to $20.43.