Court Blocks Albertsons’ $4B Special Dividend Payment To Shareholders

Washington State’s Supreme Court extended the block on Albertsons’ $4 billion special dividend payment to shareholders late last week by granting the state attorney general’s (AG)’s request for emergency injunctive relief.

The block will remain in effect until the court can review each respective side’s argument. According to a statement from Albertsons, it has filed a motion to expedite the court’s review.

The transaction was first announced alongside the retailer’s $25 billion acquisition by merger plan with Kroger in October and was originally set for November 7; however, the payment quickly raised concern among six state AGs, eventually leading to four separate lawsuits aimed at blocking the move.

In Washington State, a temporary restraining order (TRO) was placed on the payment on November 3, originally set to expire in late that month, but it was later extended until today, December 19. As for the other lawsuits, a judge denied the District of Columbia AG’s request for a TRO in early November, but the state AG as well as those from California and Illinois then filed a request for a preliminary injunction on December 1, which would also block the payment. That request is still pending.

After the payment was initially challenged and despite its public announcement in a joint press release from the two grocers, Vivek Sankharn, CEO of Albertsons, and Rodney McMullen, CEO of Kroger, have since stated that the dividend is not a part of the deal. Additionally, both claim the decision for the dividend payment was made solely by Albertsons. According to the order, Albertsons had also considered returning funds to shareholders via a stock buy-back prior to announcing the merger, but abandoned that plan when the company determined it could potentially result in SEC violations.

Either way, state governments and regulators argue the payment, which totals one-third of Albertson’s current market share, would dilute the retailer’s ability to meaningfully compete with Kroger ahead of the potential deal closing, per accordance with federal antitrust laws.

“Whether the proposed special dividend is the product of improper concerted action between Albertsons and Kroger turns on disputed questions of fact and competing interpretations of the Consumer Protection Act,” states the order filing. “The superior court did not find evidentiary support for the State’s request for a preliminary injunction. Determining whether that was a correct decision will require careful review of the records thus far provided. The State does not make a compelling case at this juncture that it will prevail in the end, but the issue is at least debatable for purposes of determining whether discretionary review is merited.”

Earlier this month, and ahead of the TRO’s expiration date, a judge denied Washington State AG Bob Ferguson’s request to place a preliminary injunction on the payment until the merger had undergone the full antitrust review process. That request was denied and appealed by Ferguson who then requested emergency injunctive relief.

After the issue was moved up to the state’s supreme court, the motion for emergency injunctive relief was granted, ultimately extending the block until further notice in order to “to preserve the fruits of a successful discretionary review proceeding.”

“The same reasoning supports extending the TRO further at least until the discretionary review and direct review questions are resolved,” the order states. “As for equitable considerations, the harm of further delay to Albertsons and Kroger is seemingly less than immediate erasure of the State’s interest in obtaining success on discretionary review.”