(Bloomberg) — Plans by Albertsons Cos. to pay $4 billion to shareholders as a special dividend were developed before the company started talking about a potential merger with Kroger Co., according to a letter from the grocery-store chain to a group of state attorneys general that raised concerns about the payout.
Most Read from Bloomberg
Washington, DC, Attorney General Karl Racine and attorneys general from Arizona, California, Idaho, Illinois and Washington State last week asked Albertsons to hold off on the dividend while they review the pending merger, saying it could be a “massive improper giveaway to certain shareholders” and could put the company into a difficult financial situation should Kroger’s planned takeover of Albertsons be blocked.
Albertsons had announced the dividend after agreeing to the deal, which is valued at $24.6 billion. In an Oct. 28 letter reviewed by Bloomberg, the grocery-store chain told the AGs that the payment is independent of the merger and part of a plan to return capital to shareholders, and that the potential liability from canceling the payout means it cannot comply with the states’ request.
Read more: Albertsons Urged by AGs to Pause $4 Billion Payout Amid Deal
Canceling the dividend “would expose Albertsons to significant legal and financial liability” as trading in the stock ex-dividend is ongoing and “investors of all sorts are acting in reliance” on the plans. “Accordingly, Albertsons cannot comply with the states’ request to delay payment of the special dividend.”
A representative for Albertsons declined to comment on the letter.
The proposed alliance would create a grocery behemoth with almost 5,000 stores and annual revenue of about $200 billion. Racine said he was concerned about the merger hurting competition and raising prices on consumers already hurting from inflation. If Albertsons doesn’t halt the dividend payment voluntarily, the AG’s office could seek an injunction in court, Racine said in an Oct. 26 interview on CNBC’s Squawk Box.
“The Special Dividend is not Kroger paying Albertsons to do (or not do) something, and it is not conditioned on the merger closing,” lawyers for the company told Racine in the letter. “Albertsons is in strong financial condition today, and will be in strong financial condition after the Special Dividend is paid.”
Albertsons noted in its letter that the two chains have promised to use $500 million in savings from the combination to lower prices, $1 billion to improve stores and another $1 billion to continue raising associate wages and benefits. The chain said returning capital to shareholders “who have entrusted Albertsons with being a leading grocer” is part of its growth strategy.
“It provides near-term liquidity to all of its shareholders, which Albertsons had planned and was prepared to do regardless of any acquisition by Kroger,” Albertsons said. “It reflects Albertsons’ independent decision to effectuate the capital allocation strategy it began evaluating with its advisors long before Kroger expressed interest in Albertsons.”
Most Read from Bloomberg Businessweek
©2022 Bloomberg L.P.
Source: https://finance.yahoo.com/news/albertsons-says-planned-4-billion-201805045.html