(Reuters) -Washington State Attorney General Bob Ferguson filed a lawsuit on Tuesday to block grocery chain Albertsons Cos Inc from paying dividends to shareholders before closure of its proposed merger with supermarket operator Kroger (NYSE:KR) Co.
The $4 billion payout to shareholders "risks severely undercutting the grocery giant's ability to compete during the lengthy time period government regulators — including Washington — will be scrutinizing the merger," according to a statement posted to the Washington Attorney General's website.
Kroger had snapped up Albertsons in a $25 billion deal last month, creating a U.S. grocery behemoth to better compete with leader Walmart (NYSE:WMT) Inc on prices, but was expected to run into antitrust roadblocks.
The Attorney General will file a temporary restraining order on Tuesday or Wednesday, which, if granted, will block Albertsons from making the payment while Ferguson's lawsuit is ongoing.
"Paying out $4 billion before regulators can do their job and review the proposed merger will weaken Albertsons' ability to continue business operations and compete," Ferguson added.
Albertsons responded to the lawsuit by calling it "meritless" and without "legal basis".
"The special dividend is the means by which we are independently executing our longstanding capital return strategy," Albertsons spokesperson said in an emailed statement to Reuters. "It will be paid regardless of whether the merger is completed."
Kroger did not immediately respond to a request for comment on the AG's lawsuit.
Late in October, District of Columbia Attorney General Karl Racine said that half-a-dozen state attorneys general are digging into Kroger planned acquisition of Albertsons.