Albertsons Companies is moving forward with its $4 billion special dividend, after the Washington State Supreme Court declined to review a lower court ruling allowing the payment.
In a statement, Albertsons wrote it would immediately begin processing the payment as soon as it could – which will go to shareholders of record as of Oct. 24 last year. The company, through a third-party spokesperson, declined additional comment.
Albertsons announced a $6.85 special dividend, totaling about $4 billion, originally payable Nov. 7. The company said it would use $2.5 billion in reserve cash and take on $1.5 billion in debt to compete the payment. About three-quarters of outstanding shares are held by the grocery chain’s private equity owners which took the company public in 2020.
Previous statements have called the multiple lawsuits challenging the dividend “meritless,” saying the decision to pay a special dividend was fully informed and would not put the company in financial jeopardy.
In a statement, Washington’s attorney general Bob Ferguson wrote he was “surprised and disappointed” that the state Supreme Court declined to review the case. His office had challenged the dividend on antitrust grounds, arguing that because the dividend was announced along with the company’s pending merger with Kroger, the two companies unfairly colluded. Attorneys for the state also argued the payment would leave the company financially vulnerable, which Albertsons disputed.
Washington State Superior Court Judge Ken Schubert blocked the special dividend payment while the case played out, but ultimately ruled in favor of Albertsons in December. The payment remained on hold while the state Supreme Court reviewed a motion to appeal.
Albertsons claimed it faced legal jeopardy by not paying the dividend as scheduled, but it's not known if any shareholders have already taken or plan to take legal action.
University of Idaho Law Professor Linda Jellum, who teaches corporate tax law, explained there could be negative tax consequences for shareholders because it was not paid in the year it was declared.
"By delaying into January, the difference is if taxpayers have more income this year, [tax on the special dividend] is going to hit them harder," she said.
Dividend income is taxed at a marginal rate for individuals, up to 37%. The delay could also be beneficial if taxpayers have less income this year compared to 2022 – but the vast majority of the payment is going back to the private equity ownership groups, not individual shareholders.
According to Jellum, corporations are not taxed on dividends, so the delay shouldn't have a tax consequence to Albertsons. Depending on how much of the company each private equity group owns, Jellum said, some of the dividend might be deductible to Albertsons.
The special dividend is still being challenged in federal court, but both a district court judge and the federal Court of Appeals have declined to block the payment while the legal process plays out, an indication they don't feel the legal challenges would prevail at trial.
The merger between two of the country’s largest grocery chains is expected to face stiff antitrust review. Ferguson, Washington’s AG, said, “I want to be clear: This merger is far from a done deal. My team and I will be conducting a thorough review.”
This story will be updated.
