Illinois AG sues to stop Jewel-Osco parent Albertsons from paying $4 billion dividend

Illinois Attorney General Kwame Raoul has sued grocery giants Kroger and Albertsons, which announced in October they plan to merge, over a nearly $4 billion payment scheduled to go out to Albertsons shareholders in November.

Kroger, which owns Mariano’s, said in October that it planned to acquire Albertsons, which owns Jewel-Osco, for $20 billion. Because of the scale of the merger and the high degree of overlap between Albertsons- and Kroger-owned stores in some areas of the country, including in Chicago, the deal stands to undergo heavy scrutiny from federal regulators. Last week, Raoul joined a group of six attorneys general who signed a letter asking Albertsons to hold off on paying out the dividend, which is scheduled for Nov. 7.

The lawsuit, which was filed jointly by Raoul and the attorneys general of Washington, D.C., and California on Wednesday, alleges the planned dividend would violate state and federal antitrust laws by leaving Albertsons cash-strapped, therefore impairing its ability to compete with other grocery companies, including Kroger. The lawsuit seeks to prevent Albertsons from paying out the dividend until the attorneys general have completed antitrust regulatory review of the merger.

In a statement Wednesday, Raoul accused the companies of attempting to undermine the regulatory process.

“The proposed Albertsons-Kroger merger would represent a major shake-up of the supermarket industry in Illinois at a time families continue to struggle with increased food prices from inflation,” Raoul said in a statement. “With so much at stake, it is imperative our merger review process continues, allowing us to evaluate the effect of this merger on workers and consumers, particularly in historically disinvested neighborhoods already lacking healthy food access. Neither company should be attempting to undermine our review process.”

The lawsuit was filed in the U.S. District Court for the District of Columbia. The attorney general for Washington state filed a similar lawsuit in King County Superior Court in Washington.

In a statement Wednesday, Albertsons said the filing was “meritless” and that the payout was not contingent on the company’s merger with Kroger.

“As Albertsons Cos. stated publicly when it announced its Board-led review of strategic alternatives in February, capital return strategies were among the potential options to enhance growth and maximize shareholder value,” the company said in a statement. “The special dividend announced on October 14 is the means by which we are independently executing our longstanding capital return 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 cooperatively with the FTC (Federal Trade Commission), state 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 Illinois Rep. Jan Schakowsky of the state’s 9th District, also raised concerns about the dividend.

“This special dividend could also be an artificial attempt for Kroger and Albertsons to use the ‘failing firm’ defense and argue that the acquisition is necessary because Albertsons can no longer operate independently, even though this result will have been self-induced by the parties’ major private equity payout,” they wrote.

Albertsons denied claims the dividend would impede its ability to compete against other grocery companies. “Given our financial strength and positive business outlook, we are confident that we will maintain our strong financial position as we work toward the closing of the merger,” it said.

The lawsuit filed by Raoul alleges the scheduled Albertsons payout is more than 57 times the size of the company’s typical dividends.

In the Chicago area, Kroger operates 44 Mariano’s stores and about 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 here, the Chicago area is likely to see some of the divestitures required by the trade commission before the deal is allowed to go through, antitrust experts told the Tribune. In an attempt to preempt antitrust concerns, Kroger and Albertsons have said they plan to divest between 100 and 375 stores into an unnamed spinoff company.