Albertsons, despite debt, will hand $4 billion to owners before merger

The 2,270-store Albertsons grocery company is facing mountains of debt. It owes about $4.9 billion to worker pension funds and another $7.5 billion to creditors. Credit rating agencies say the company has a substantial risk of being unable to repay.

Yet the owners of Albertsons are about to give themselves an extraordinary bonus.

Next Monday, according to company plans, Albertsons will reward the private equity consortium that controls the company with a $4 billion “special dividend” for shareholders. To make the payment to the private equity funds and other shareholders, Albertsons will expend company cash and borrow about $1.5 billion.

“They’re essentially looting this company,” said Jonathan Williams, an official with United Food and Commercial Workers Local 400, which represents Albertsons workers. “Instead of paying themselves billions of dollars, the owners should invest in the essential workers who risked their lives to keep the stores open during the pandemic.”

Albertsons operates stores under many different names, including Albertsons, Safeway, Vons, Jewel-Osco, Shaw’s, Acme, Tom Thumb, Randalls, United Supermarkets, Pavilions, Star Market, Haggen, Carrs, Kings Food Markets and Balducci’s.

The company says that the special dividend merely fulfills its legal responsibility to maximize rewards for shareholders and that the outlay does not imperil its finances or ability to grow. But the payout is provoking fierce opposition from unions, some lawmakers on Capitol Hill and most recently, state attorneys general, with critics arguing that the multibillion-dollar payout represents an egregious case of private equity managers enriching themselves while eviscerating a company.

Washington state’s attorney general filed a lawsuit on Tuesday to block the $4 billion payment until a related merger plan with grocery rival Kroger is reviewed in full.

On Wednesday, the attorneys general for Illinois, California and District of Columbia filed a similar suit in federal court.

“We’re asking the court to stop this cash grab,” D.C. Attorney General Karl A. Racine said in an interview. While acknowledging that the company is required to reward investors, Racine said Albertson’s responsibilities also include treating consumers and workers fairly. He, too, described the planned payout to Albertsons shareholders as “looting.”

Albertsons is controlled by a consortium of five investment firms, the largest of which is Cerberus Capital Management, a private equity firm led by Steve Feinberg, a major Republican political donor who served on the economic advisory council for Donald Trump’s 2016 presidential campaign. Cerberus owns about 29% of Albertsons shares. Collectively, the consortium owns 75% and controls the company, according to financial statements.

While the company has long faced financial struggles, its fortunes did improve with the pandemic as consumers spurned restaurants for eating at home. The stock price rose and its levels of debt receded.

Albertsons contends that even after it provides $4 billion to shareholders, the company’s finances will be fundamentally strong.

“Albertsons Cos. will continue to be well capitalized with a low debt profile and strong free cash flow,” the company said in a statement. “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.”

As for any concerns that the pensions for its employees might be endangered, the company said those funds are projected to remain solvent until at least 2051.

“We always have and will continue to make the cash contributions to the multi-employer pension plans we participate in according to the collective bargaining agreements that govern these benefits,” the company said.

The arguments over the shareholder payout come as Albertsons is planning to merge with another grocery giant, Kroger, in a $24.6 billion deal that is expected face intense antitrust review from federal regulators because it joins two of the nation’s largest grocery store chains.

Members of both major parties have raised concerns that the merged company would create a grocery empire, reduce competition and allow the behemoth to raise food prices.

Three senators – Amy Klobuchar, D-Minn.; Richard Blumenthal, D-Conn.; and Cory Booker, D-N.J. – already have urged the Federal Trade Commission to investigate.

“This merger raises considerable antitrust concerns,” they wrote to FTC Chair Lina Khan. “The grocery industry is essential to daily life, and Americans need the benefits that robust competition brings, namely lower prices, higher quality, and innovation.”

Sen. Mike Lee (Utah), the top Republican on the Senate Judiciary Committee’s antitrust panel, joined in their concern, saying in a statement that he would “do everything in my power to ensure our antitrust laws are robustly enforced to protect consumers from anticompetitive mergers that could further exacerbate the financial strain we already feel in the grocery store checkout aisle.”

The company has responded that, to the contrary, the larger company will be stronger and benefit everyone.

“Our planned combination with Kroger will provide significant benefits to consumers, associates, and communities and offers a compelling alternative to larger and non-union competitors,” Albertson’s said in a statement.

While the multibillion-dollar payout for shareholders was announced in connection with the merger plan, it will go forward regardless of whether the merger wins approval from regulators, company officials said. The payout and the lawsuits may be just the first battle in what could be an extended war over the deal.

“Private equity firms have a long track record of being extractive – that is, extracting wealth from their portfolio companies,” said Carter Dougherty, spokesman for the Americans for Financial Reform, which advocates for regulation of private equity. “When you see Cerberus shaking $4 billion out of a company in a difficult industry like groceries, it’s not out of bounds to say this is yet another episode of industry abuses.”