October 19, 2022
Albertsons is poised to give away a third of the value of its grocery business to its former private equity owner Cerberus and the PE firm’s consortium of Wall Street investors. If payment of this dividend is not stopped by the SEC or other regulators, Albertsons—now a publicly traded supermarket chain—will pay a $4 billion special dividend in early November. This dividend equals about a third of the supermarket chain’s market value. Almost 70 percent of this special dividend will go to its former private equity owners plus Apollo Global Management, which purchased a minority share in Albertsons last year. This will be a spectacular windfall for Cerberus, enriching the PE firm and its owners while putting the future of the Albertsons chain and its workers at risk.
The merger of Kroger and Albertsons, the first and second largest supermarket chains in the United States, was announced on Friday, October 14, 2022. The merger announcement contained a bombshell, hidden in plain sight, that most financial writers failed to notice.
The merger announcement said that, as part of the transaction, Albertsons Companies will pay a special cash dividend of up to $4 billion to its shareholders of record on October 24, 2022. A dividend of this size could bankrupt the debt-ridden supermarket chain.
While the general view of financial markets is that the FTC and the courts will not let the merger go through, the payment of this special dividend sets Albertsons up for failure and provides Kroger with a powerful “failing firm” defense of its merger proposal. Kroger can argue that Albertsons will face bankruptcy if the merger is not approved.
Approval of the merger would be bad news for both workers and shoppers.
Kroger, as a behemoth supermarket chain, would be able to set what it would pay its suppliers and what it would charge its customers. The merged company would be able to squeeze farmers and others in the supply chain serving this grocery retailer and raise the prices it charges shoppers. The merger would end up depressing wages and raising the cost of food, worsening inflation and inequality.
Regulators must halt payment of this special dividend both because its payment will unfairly enrich its former PE owners and because payment of the dividend will set Albertsons up for failure and increase the probability that the merger with Kroger will be approved.
There is little time to lose. Payment of the dividend must be stopped before this coming Monday.