Albertsons sued to stop $4 billion payout ahead of Kroger merger

Private equity firm Cerberus Capital Management may need to wait on its grocery windfall.

Driving the news: Washington state's attorney general yesterday filed a lawsuit seeking to block supermarket chain Albertsons from paying a $4 billion cash dividend to shareholders like Cerberus on Nov. 7.

Backstory: Cerberus invested just $100 million for control of Albertsons in 2013, later taking it public in 2020 at a $9.3 billion market cap (not including around $8.5 billion in debt). Albertsons recently agreed to be acquired by rival Kroger at more than double the $16 per share IPO price.

• Cerberus currently holds a 28.37% stake in Albertsons, worth around $5.18 billion via the Kroger deal. It also has two of the company's 11 board seats, including a co-chair.
• But it's in line to get more than $1 billion of that total next week, via a special dividend that was announced at the exact same time as the Kroger merger. That money, or set to be paid out next week, and wouldn't be clawed back if the Kroger merger is blocked by antitrust regulators or otherwise doesn't close.
• The dividend is worth $6.85 per Albertsons share, which would be subtracted from the $34.10 per share Kroger payout. Again, if there ever is a Kroger payout.

Lawsuit: Washington state Attorney General Bob Ferguson argues that Albertsons would be putting itself at a competitive disadvantage to Kroger by paying out the dividend, and thus is seeking a temporary restraining order.

• In a press release, Ferguson said: "Corporations proposing a merger cannot sabotage their ability to compete while that merger is under review.”

• Albertsons reportedly has called the lawsuit "meritless," and recently told a group of state AGs that the dividend is "independent" of the merger.
• But here's the thing: Albertsons last month said the dividend was "in connection with" the merger, in its press release announcing the deal. Kroger's press release called the dividend "part of the transaction."

Look ahead: Albertsons and Cerberus are seeking to take some money off the table ahead of a very tricky regulatory negotiation, which is certain to require divestitures.

• The big question may become if a dividend blockage causes any renegotiation of the overall merger agreement. Or if the two transactions really are "independent."

Read the lawsuit: