(Bloomberg)—Albertsons Cos. should hold off on a $4 billion dividend payment to shareholders while a pending merger with Kroger Co. is reviewed, Washington, DC, Attorney General Karl Racine said on behalf of a bipartisan group of attorneys general.
The dividend “could be a massive improper giveaway to certain shareholders,” Racine said Wednesday on CNBC’s Squawk Box, in announcing that the AGs had asked Albertsons to pause the payout. It would make it difficult for the grocery chain to compete in what is already a “very, very tough marketplace” should Kroger’s planned takeover of Albertsons be blocked, he said.
Albertsons announced the dividend after agreeing to merge with Kroger in a deal valued at $24.6 billion. Racine said he was concerned about the merger hurting competition and raising prices. If Albertsons doesn’t halt the dividend payment voluntarily, the AG’s office could seek an injunction in court, Racine said.
“We will, of course, review the entirety of the merger,” he said.
Representatives of the two companies didn’t immediately reply to requests for comment on Racine’s remarks.
The proposed tie-up would create a grocery giant with almost 5,000 stores and annual revenue of about $200 billion. It would give the combined company increased buying power and an opportunity to save on costs as brick-and-mortar retailers invest heavily to enhance their online offerings.
A key impetus for the deal is giving Kroger entry into the Northeast, filling out its national footprint. In areas with overlap, the companies plan to offload as many as 375 stores through a spinoff if they can’t find buyers for them.
The two have pledged to use $500 million of the savings generated by the merger to cut prices for consumers. Overall, Kroger and Albertsons say, they’ll squeeze out about $1 billion in annual cost savings within the first four years of the deal’s closing, after divestitures, thanks to improved purchasing, technology investment and optimized manufacturing and distribution networks.
Two US senators said last week they would hold a hearing in November on the deal’s impact on competition among grocery stores.
--With assistance from Brendan Case and Daniela Sirtori-Cortina.
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