A bipartisan group of state attorneys general (AG) are challenging the impending, initial transaction outlined in the Kroger/Albertsons merger agreement – a special dividend cash payment totaling nearly $4 billion to stakeholders on November 7.
State AGs from the District of Columbia, California, Arizona, Idaho, Illinois and Washington state sent a letter to the two retailers this week, urging Albertsons to delay the payout until after the antitrust review process is complete. State AGs argue the $6.85 per share dividend payments would cost Albertsons nearly one-third ($4 billion) of its $11.19 billion market share, hindering its ability to meaningfully compete with Kroger until 2024 when the deal is expected to close. Per terms of the proposed merger agreement, as well as anticompetitive legal requirements, Albertsons must continue to meaningfully compete with Kroger until the deal closes.
“Healthy and strong competition is an American value that Republicans and Democrats can unite around,” said Karl Racine, Attorney General for the District of Columbia, in a statement. “Anticompetitive mergers have real impacts on everyday people. We’re deeply concerned about the level of concentration in essential industries, such as grocery stores. … While we trust that Albertsons will adhere to our request, we are actively exploring other options to achieve our objectives, including litigation.”
Considering the antitrust review process has just barely begun and the deal is not expected to close for nearly two years, the state AGs emphasized that regulatory approval “is far from assured.” Racine added that while the deal could gain all of the necessary approvals, it also “could amount to a massive improper giveaway to certain shareholders.” The letter also signals that state attorneys will likely request to put the merger agreement through their respective review and approval processes, adding another hurdle to the already intricate review system.
“Should any regulatory challenge to the merger succeed, or should the parties abandon the transaction, Albertsons would have to continue to compete with other grocery stores, a goal that with its decision to enrich its shareholders to the tune of $4 billion will have [been] made significantly more difficult to accomplish, if not unattainable altogether,” the letter reads.
The proposed merger has come under scrutiny since it was announced earlier this month and has gained attention from antitrust advocacy groups as well as lawmakers and the Federal Trade Commission (FTC).
Last week, leaders from the Senate Judiciary Subcommittee on Competition Policy, Antitrust, and Consumer Rights, including Sens. Amy Klobuchar (D-MN), Cory Booker (D-NJ) and Richard Blumenthal (D-CT), sent a letter to the FTC highlighting areas of review it believes are key to a thorough approval process including consideration of the current inflationary pressures in grocery.
The group of AGs also pointed to inflationary pressures as a reason for delaying the payment. The letter cites the over 12% increase in grocery prices over the last year, and claims the market share captured by the two retailers put them in a position that could further impact grocery prices for consumers and also cause additional labor and supply chain issues. Between Kroger and Albertsons, the retailers employ over 710,000 people in its combined count of 4,996 stores across 48 states.
“In this period of historically above-average inflation, purchasers of groceries have been particularly hard hit,” the letter states. “[But] the proposed merger’s implications do not end with the consumer…[and] if the proposed merger has anticompetitive effects, nearly every corner of this country will feel them.”
“Grocery stores supply daily necessities to millions of people throughout the United States and employ hundreds of thousands of workers in communities across the country,” the letter continues. “That is why we are dedicated to ensuring that the proposed merger of Kroger and Albertsons… does not result in higher prices for consumers, suppressed wages for workers, or other anticompetitive effects.”
The AGs have given the two retailers until Friday at 5 p.m. to respond to the request for a delay on the dividend payment.