By Siddharth Cavale
NEW YORK (Reuters) -The attorneys general of Washington D.C., California and Illinois filed a lawsuit on Wednesday in a federal court seeking to block grocer Albertsons' $4 billion dividend payout to shareholders before the closing of its proposed merger with rival Kroger (NYSE:KR) Co.
"(The lawsuit) is seeking a temporary restraining order to stop a nearly $4 billion payout to Albertsons’ shareholders - a payout 57 times greater than the historic dividends Albertsons has provided — until a full review of their proposed merger is complete," Karl Racine, the attorney general for Washington D.C., said in a statement.
The lawsuit was filed under seal in the U.S. district court for the District of Columbia, he said.
Kroger snapped up Albertsons in a $25 billion deal last month, to better compete against U.S. grocery industry leader Walmart (NYSE:WMT) Inc on prices.
As part of the deal, Albertsons announced a payout of a "special cash dividend" of up to $4 billion to its shareholders, funded by $2.5 billion in cash on hand and borrowing the rest, with a payment date of Nov. 7.
But Wednesday's lawsuit alleged that the proposed dividend was in violation of federal and state antitrust laws by rendering Albertsons less able to compete effectively with other supermarkets.
The attorneys general also raised concerns that it would make the retailer strapped for cash after the payout, which they noted was equivalent to more than two years of profit for the company and also represented a third of its market value. They added that it would hamper the company's ability to price competitively and maintain staffing and staff wages and benefits.
"Albertsons' rush to secure a record-setting payday for its investors threatens District residents' jobs and access to affordable food and groceries in neighborhoods where no alternatives exist," Racine said.
An Albertsons spokesperson said the the lawsuits brought by the attorneys general were "meritless" and provided "no legal basis" for canceling or postponing the dividend.
"The special dividend ... is not contingent on our merger with Kroger and is not in any way a condition to Albertsons Cos’ or Kroger’s obligation to consummate the proposed merger. It will be paid regardless of whether the merger is completed," the spokesperson added.
A Kroger spokesperson said the decision to issue a special dividend was solely Albertsons' and was independent of the merger transaction.
The case filed on Wednesday is District of Columbia office of attorney general et al v. Kroger co. Et al with the case number 1:22-cv-03357.