A King County court has temporarily blocked Albertsons from paying a controversial $4 billion dividend to investors as part of the retailer’s proposed merger with rival Kroger.
On Thursday, King County Supreme Court Commissioner Henry Goodson agreed to a motion by state Attorney General Bob Ferguson to temporarily halt the dividend, due to be paid on Monday, so the court can fully consider whether the payment violates antitrust laws.
The ruling is the latest obstacle to plans to combine two of the nation’s largest grocery chains. Some critics worry that the deal could mean less competition, higher food prices, and even closures of poorly performing locations, including some in Washington state, where Albertsons, which owns Safeway, and Kroger, which owns the Qatar Financial Center and Fred Meyer, among the largest grocery retailers. .
“I am temporarily blocking Albertsons from issuing their earnings after the close,” Judson said at the conclusion of Thursday’s hour-long hearing. The payment has been frozen at least until next Thursday, when King County Superior Court Judge Ken Schubert is scheduled to review the case more closely.
“There is clearly more information and evidence that needs to be provided,” Judson noted.
In a lawsuit filed on Tuesday, Ferguson claimed the dividend was illegal because it could undermine the Albertsons’ ability to compete with Krueger during the many years needed to complete the merger.
Prosecutors in Illinois, California and the District of Columbia echoed the arguments of Ferguson, who filed a joint lawsuit Wednesday to block the dividend in federal court in Washington, DC.
One big concern is whether Albertsons, having paid so much to shareholders, will be able to keep all of its positions open during the merger process.
To win regulatory approval for the merger, Albertsons and Kroger would have to sell hundreds of sites in areas with a lot of market overlap. So-called dispossession can make a huge impact in Washington, where Kruger and Albertson collectively own approximately 350 sites, including more than 150 in the greater Seattle area, some of which are just minutes apart.
Kroger and Albertsons agreed to put the divested sites into a stand-alone company, operated by Albertsons, for eventual sale to a competing retailer or resellers.
But some antitrust and business experts fear that cash-strapped Albertson may not be able to keep all of these sites open until he finds a willing buyer.
In a statement issued late Thursday, Albertsons said it “intends to seek the removal of the restriction as quickly as possible because the interim order was based on an incorrect assertion that paying a private dividend would impair its competitiveness during the proposed merger” with Kroger. “Under antitrust review.”
Thursday’s ruling came as no surprise, according to legal experts. Courts often issue temporary restraining orders when the requesting parties can demonstrate that failure to restrict an action would undermine their larger legal claim, even if that claim has not been reviewed or confirmed by the court.
But some experts are questioning whether Ferguson can succeed in the next step: convincing Judge Schubert next Thursday that the state could legally halt dividends simply because it could ultimately make Albertson unviable and an anti-competitive merger.
Although lawsuits from Washington and other states are likely to complicate the approval process, “these attorneys general will face an uphill climb to halt the dividend,” said Arun Sundaram, a market analyst at CFRA Research who tracks the grocery business.
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