Illinois sues AG to stop Albertsons, parent of Joel Osko, from paying $4 billion in dividends

Illinois Attorney General Kwame Raoul is suing grocery giants Kroger and Albertsons, which announced in October they planned to merge, over nearly $4 billion that is set to go to Albertsons shareholders in November.

Krueger, who owns Mariano, said in October it planned to acquire Albertsons, which owns Joel Osko, for $20 billion. Given the size of the merger and the high degree of overlap between Albertsons-owned stores and Kroger in some areas of the country, including Chicago, the deal is under intense scrutiny from federal regulators. Last week, Raul joined a group of six prosecutors who signed a letter asking Albertson to defer the dividend payment, which is scheduled for November 7.

The lawsuit Raul filed jointly with attorneys general in Washington, D.C. and California on Wednesday, It is alleged that the planned dividend would violate state and federal antitrust laws by leaving Albertsons in financial distress, thus impairing its ability to compete with other grocery companies, including Kroger. The lawsuit seeks to prevent Albertsons from paying dividends until the attorney general has completed an antitrust regulatory review of the merger.

In a statement on Wednesday, Raul accused the companies of trying to undermine the regulatory process.

“The proposed merger between Albertsons and Kroger would represent a major shake-up for the Illinois supermarket industry at a time when families continue to struggle with rising food prices due to inflation,” Raul said in a statement. “With so much at stake, it is imperative that our merger review process continues, allowing us to assess the impact of this merger on workers and consumers, particularly in historically underinvested neighborhoods that already lack access to healthy food. Neither company should attempt to undermining our audit process.”

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

In a statement on Wednesday, Albertsons said the deposit was “not worth” and that the payment was not conditional on the company’s merger with Kroger.

“As Albertsons Cos publicly stated when it announced its board-led review of strategic alternatives in February, return-of-capital strategies were among the potential options to boost growth and maximize shareholder value,” the company said in a statement. “The special dividend announced on October 14th is the means by which we independently implement our long-term capital return strategy.”

In a statement, Krueger said the decision to issue the dividend was made “only” by Albertson and was independent of the merger.

“We remain committed to working collaboratively with the Federal Trade Commission (FTC), state attorneys general and all other interested parties as we work to complete the transaction and unlock the many benefits it offers,” Krueger said.

In an Oct. 25 letter to the Federal Trade Commission (FTC) opposing the merger, Senators Elizabeth Warren and Bernie Sanders, along with Illinois Rep. Jan Schakowsky of the state’s 9th District, raised dividend concerns.

This private dividend could also be an artificial attempt by Kruger and Albertsons to use the ‘failed company’ defense and argue that the takeover is necessary because Albertson can no longer operate independently, even though this outcome would be made by the parties and they wrote ‘major private equity payments’.

Albertsons denied allegations that the dividend would hinder 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 to finalize the merger,” she said.

The lawsuit filed by Raul alleges that the Albertsons’ scheduled payments are more than 57 times the size of a typical company’s earnings.

In the Chicago area, Kroger operates 44 Mariano stores and about 10 foodie locations 4 less. Jewel-Osco owns 183 grocery stores in Illinois and a handful in Indiana and Iowa.

Because there’s a lot of overlap between the two companies here, the Chicago area will likely see some of the stripping commissions required by the Commerce Commission before allowing a deal, antitrust experts told the Tribune. In an effort to pre-empt antitrust concerns, Krueger and Albertson said they plan to divest between 100 and 375 stores into an unnamed subsidiary.

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