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Washington State AG sues Albertsons over special dividend

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Washington Attorney General Bob Ferguson filed a lawsuit against Albertsons, attempting to block the company's planned $4 billion special dividend payment and asking for a temporary restraining order against the payout scheduled for Nov. 7.

Ferguson was among six Attorneys General last week who sent a letter to Albertsons last week asking the company to delay the dividend while regulators examined the planned merger with the Kroger Company. The letter, also signed by Idaho Attorney General Lawrence Wasden, threatened legal action if Albertsons did not delay.

Albertsons responded to that request with a letter October 28, writing it could not comply because of the legal liability delaying a dividend could create for the company. It also said the dividend was 'independent' of the merger and aligned with the company's long-term plans to reward investors.

The $6.85 dividend was announced along with the merger on October 14, to be paid to shareholders as of October 24 on November 7. October 24 is known as the ex-dividend, or ex-date, because shares no longer qualify for the dividend.

A company's stock price typically falls by the amount of the dividend; Albertsons stock ($ACI), fell $6.50 to $20.96 on October 21 and opened trading Wednesday at $20.40.

Ferguson filed the lawsuit in Washington State Superior Court. A spokesman for Lawrence Wasden said Idaho was not part of that litigation, but had no further comment.

The filing argues that Albertsons is using $2.5 billion cash on hand and borrowing another $1.5 billion to pay the special dividend, severely depleting the company's ability to stay competitive.

"These are irreversible changes that will weaken its competitive standing as part of its Agreement and Plan of Merger with its competitor, even before federal and state antitrust enforcers have even had an opportunity to review the merger," Ferguson wrote in the request for a temporary restraining order.

In a statement to Boise State Public Radio, Albertsons called the lawsuit meritless, writing it "provides no legal basis for canceling or postponing a dividend that has been duly and unanimously approved by Albertsons Cos.’ fully informed Board of Directors."

Albertsons in a recent SEC filing wrote it expected to need around $10 billion of liquidity for the next 12 months, a figure which included the special dividend amount. The company admitted its regular cash flow would be unlikely to meet its remaining liquidity needs.

Ferguson argues that borrowing $1.5 billion to pay the special dividend leaves Albertsons with about $6 billion of liquidity needs and only $2.26 billion in available credit, noting that Moody's downgraded the grocer's credit rating after the dividend was announced. He called the dividend anticompetitive and linked both Albertsons and Kroger in an agreement to 'restrain trade.'

In its statement, an unnamed Albertsons Companies spokesperson wrote the dividend would not hamper the financial abilities of the company to remain competitive or keep its promises of increased wages and benefits to its largely unionized workforce.

"Given our financial strength and positive business outlook, we are confident that we will maintain our strong financial position as we work toward the closing of the merger," the company wrote.

A hearing in Washington State Superior Court on the temporary restraining order request is set for November 3rd at 2 p.m. PT.

Troy Oppie is a reporter and local host of 'All Things Considered' for Boise State Public Radio News. He's also heard Saturday nights on Boise State Public Radio Music's Jazz Conversations.