Will Albertson's stores
soon be Fred Meyer owned?
Well that's the plan or at least their plan.
It's a major merger that is
awaiting a final blessing or a
block from the federal government.
Boise based Albertsons is ready to
roll it appears and usually with
the merger companies pay out special
dividends to shareholders and with
this one that could mean up to $4
billion coming back to investors.
Just one problem,
the regulators remind us the deal
between Kroger and Albertsons isn't done
yet and they fear the special dividend.
We'll have major impacts in a negative way.
The old don't count the chickens
before they're hatched kind of thing.
Joe Paris explains what that means
for Albertsons shareholders.
A group of state attorneys general is
asking Albertsons to pump the brakes
on sending out billions in special
dividend payments to their shareholders.
Albertsons announced as a part of
their proposed merger with Kroger that
quote as a part of the transaction,
the company will pay a special cash dividend
of up to $4 billion to its stockholders.
The bipartisan group of Attorneys general,
including Idaho AG Lawrence Wasden,
expressed concerns about the
ramifications of such a large
dividend while the merger between
Albertsons and Kroger is still pending.
In a letter to Albertsons authored
by the District of Columbia Attorney
General Karl Racine and signed by AG
from five other states including Idaho,
there are concerns about the end result
of a merger between the grocery chains.
The letter says that the AG's quote
are dedicated to ensuring that the
proposed merger of Kroger and Albertsons
announced on October 14th does not
result in higher prices for consumers,
suppressed wages for workers,
or other anti competitive effects in
this period of historically above
average inflation, the letter says.
Purchasers of groceries have
been particularly hard hit.
University of Idaho associate
clinical professor of economics
doctor Stephen Peterson explains what
regulators are possibly looking at
in terms of reviewing the merger.
Will it restrict competition?
Or will it enhance, you know what?
What is its effect going
to be on the consumer?
Will it restrict competition?
You know, will it raise prices?
Or, you know, through, again,
through the supply chain effects and
through economies of scale and scope,
will it have the opposite effect
of ultimately lowering prices?
Peterson says mergers like this
can have very different outcomes.
Economic theory tells us that if you
reduce the number of sellers that caught,
that puts upward pressure on prices.
Makes it more more
expensive for for consumers.
And at the same time, mergers like
this can create economies of scale,
economies of scope and supply chain
efficiencies which lower overall prices.
The letter to Albertsons highlights
that thought, reiterating quote federal
and state competition laws forbid
parties from entering agreements
that substantially lessen competition
or unreasonably restrain trade.
So why is it dividend to investors and
issue according to the attorneys general.
Well, as highlighted in the letter,
the $4 billion special dividend
would account for, quote,
approximately 1/3 of Albertson's
market capitalization of approximately
$11.19 billion.
That amount, according to the letter,
would essentially handicap Albertsons from
competing against Kroger in the marketplace,
something that both companies are supposed
to continue doing as the merger is reviewed.
And the crux of the letter says, quote,
an agreement with Kroger that deprives
Albertsons of the cash it needs to
operate competitively is economically.
No different than other pre merger
agreements or actions that have
limited the output or other business
operations of emerging party
leading the federal agencies to act.
Even if Albertson's plans to adhere
to the legal requirement and the
mergers agreement commitment that it
continues to compete with Kroger during
the pendency of the mergers review,
paying a dividend of that size will
hamper its ability to meaningfully
compete with Kroger and quote.
And Albertsons responded to my request for
comment with the statement of their own.
It says in part quote the special
dividend allows us to.
Return cash to all of Albertson's company
shareholders following the dividend payment.
Albertson's companies will continue to
be well capitalized with a low debt
profile and strong free cash flow.
Given our financial strength and
positive business outlook,
we are confident that we will maintain
our strong financial position as we
work towards the closing of the merger
and quote the letter to Albertsons
wraps up saying that the approval
of the merger is far from assured
and quote the states must undertake
the review and assure themselves
that competition and all relevant.
Antitrust markets at issue is preserved.
The Attorney general
are asking Albertsons to cancel the issuance
of that special dividend and postpone
any payments of any kind of dividend
until the regulatory review is all over.
And that they're asking Albertsons
to really respond by 5:00 o'clock
tomorrow to tell them if they're
going to give the dividend or not.
Right now, Brian,
it's actually just a request and Albertsons,
we haven't heard from them on if they're
going to send this payment or not,
but you get the impression that if
Albertsons on their own volition
decides to not stop the payment.
At that point,
we could see some legal maneuvers.
Now, to be very clear,
this is just a letter right now
from a group of attorneys general.
If they don't get their way,
it wouldn't be out of the
question to see this in court.
So basically, Albertsons is
putting the cart before the horse,
saying we're going to pay out this money.
So we expect you to grant
or to approve this sale.
And if not, that means we're
out a lot of money and then we
might have to clear bankruptcy.
Is that how this works?
Yeah. And stuff like this, you know,
there's some very specific maneuvering.
Of course, we'd have to hear from Albertsons
to hear exactly what their plan is.
But that is 1 characterization
of what's going on here.
Put yourself in a situation
where they can't say no, they
can't say no, alright,
we'll see what happens.
They might say no.
Alright. Thank you, Joe.