A Washington State judge has extended the temporary block on a $4 billion payout to Albertsons’ shareholders in an effort to halt the cash dividend until the grocery giant’s proposed merger with Kroger can be fully reviewed by federal regulators. Judge Ken Schubert of King County Superior Court last week extended the temporary restraining order (TRO), now effective until Nov. 17.
Additionally, Schubert granted a request by the Washington attorney general’s office asking that Albertsons president and CFO Sharon McCollam and Kroger CFO Gary Millerchip take to the witness stand, allowing the court to cross examine their claims that the dividend payments would not hurt Albertsons’ ability to “meaningfully” compete, as reported in Law 360.
Albertsons’ shareholder payout was announced on October 14 alongside Kroger’s planned $24.6 billion acquisition of the grocery giant. The special dividend to shareholders of $6.85 per share was originally slated to happen November 7 but was halted by a TRO filed by a commissioner assistant to Schubert on November 3.
Prior to the temporary restraining order, attorneys general from Washington state and the District of Columbia filed two separate lawsuits to delay the payout ahead of the November 7 deadline. Washington Attorney General Bob Ferguson filed the first lawsuit on November 1, with District Attorney General Karl Racine following suit the following day.
The lawsuits came after a bipartisan group of state attorneys general from the District of Columbia, California, Arizona, Idaho, Illinois and Washington sent a letter to Albertsons and Kroger urging the two retailers to delay the payout. In a response letter, Albertsons shot down the request, claiming payment postponement would create “significant” legal and financial liabilities.
Though the merger isn’t expected to close until 2024, the current timing of the special dividend would deprive Albertsons of the necessary cash on-hand to continue operating effectively and competitively. A court filing from November 10 claims the payout is the “first step in the well-worn playbook for supermarket mergers […] it will cripple Albertsons and allow it to spin off weakened stores only to acquire them once its merger is complete.”
Despite claims from both Albertsons and Kroger that the payout was a part of the original October 14 announcements, Albertsons later claimed in its October 28 letter that the special dividend had been planned prior to discussions with Kroger about the potential acquisition.
“Albertsons made clear to Kroger from the beginning of discussions that it intended to pay a special dividend to its shareholders whether or not it engaged in any transaction,” the grocery giant claimed in a November 9 court filing. “The merger agreement thus merely contemplates the possibility that Albertsons might pay the Pre-Closing dividend and contains terms adjusting the merger price if it did so.”
The next TRO hearing is set for November 17, during which Schubert will rule on the state’s request for a preliminary injunction blocking the payout following testimony from McCollam and Millerchip.