Illinois Attorney General Kwame Raoul has sued food giants Kroger and Albertsons, which announced plans to merge in October, over a nearly $4 billion payment to be made to Albertsons shareholders in November.
Kroger, which owns Mariano’s, said in October that it plans to acquire Albertsons, which owns Jewel-Osco, for $20 billion. Due to the scope of the merger and the high overlap between the Albertsons and Kroger businesses in some parts of the country, including Chicago, the deal is subject to close scrutiny from federal authorities. Last week, Raoul joined a group of six attorneys general who signed a letter urging the Albertsons to delay paying out the dividend, which is scheduled for November 7.
The lawsuit, filed jointly by Raoul and the Attorneys General of Washington, DC and California on Wednesday, claims the proposed dividend would violate state and federal antitrust laws by leaving Albertsons in cash gaps and thus affecting its ability to compete with other food companies, including Kroger. The lawsuit aims to prevent Albertsons from paying the dividend until attorneys general complete their antitrust review of the merger.
In a statement on Wednesday, Raoul accused the companies of trying to undermine the regulatory process.
“The proposed merger of Albertsons and Kroger would be a major shock to the Illinois supermarket industry at a time when families continue to struggle with inflation-driven grocery prices,” Raoul said in a statement. “With so much at stake, it is imperative that our merger review process continues so we can assess the impact of this merger on workers and consumers, particularly in historically disinvested neighborhoods that already have a shortage of healthy food. Neither company should try to undermine our review process.”
The lawsuit has been filed in the US District Court for the District of Columbia. The Washington State Attorney General filed a similar lawsuit in King County Superior Court in Washington.
In a statement Wednesday, Albertsons said the filing was “unfounded” and that the payout was not contingent on the company’s merger with Kroger.
“Like Albertson’s Cos. publicly stated when it announced its board-led review of strategic alternatives in February, potential options included capital return strategies to drive growth and maximize shareholder value,” the company said in a statement. “With the special dividend announced on October 14, we are independently implementing our long-term capital repayment strategy.”
In a statement, Kroger said the decision to issue the dividend was made “solely” by Albertsons and was independent of the merger.
“We remain committed to working with the FTC, the Attorneys General and all other interested parties as we work to complete the transaction and unlock the many benefits it offers,” Kroger said.
In an Oct. 25 letter to the FTC opposing the merger, Sen. Elizabeth Warren and Sen. Bernie Sanders, along with Rep. Jan Schakowsky of Illinois’ 9th Circuit, also raised concerns about the dividend.
“This special dividend could also be an artificial attempt by Kroger and Albertsons to use the ‘failing company’ defense and argue that the acquisition is necessary because Albertsons can no longer operate independently, although that outcome was brought about by the parties themselves will be ‘big private equity payout,’ they wrote.
Albertsons denied claims the dividend would affect its ability to compete with other food companies. “Given our financial strength and positive business prospects, we are confident that we will maintain our strong financial position as we work to complete the merger,” it said.
The lawsuit filed by Raoul alleges the Albertsons’ projected payout is more than 57 times the company’s typical dividends.
In the Chicago area, Kroger operates 44 Mariano’s locations and approximately 10 Food 4 Less locations. Jewel-Osco has 183 grocery stores in Illinois and a handful in Indiana and Iowa.
Because there is so much overlap between the two companies, the Chicago area is likely to see some of the divestitures required by the Trade Commission before the deal can go through, antitrust experts told the Tribune. In a bid to quell antitrust concerns, Kroger and Albertsons have announced plans to divest between 100 and 375 businesses into an unnamed spin-off company.