Attorneys General Sue to Stop Dividend Tied to Kroger-Albertsons Deal

Three attorneys general filed a federal lawsuit on Wednesday against the supermarket chains Kroger and Albertsons, seeking to prevent Albertsons from going forward with a dividend payment to its shareholders associated with its proposed $24.6 billion sale to Kroger.

The action, led by the attorney general for Washington, D.C., most likely portends larger battles to come as the grocers push for regulatory clearance for their merger. It follows other political pushback, like a letter sent last month from Senators Bernie Sanders, Independent of Vermont, and Elizabeth Warren, Democrat of Massachusetts, and Representative Jan Schakowsky, Democrat of Illinois, to the Federal Trade Commission urging its chairwoman, Lina Khan, to oppose the deal.

Kroger’s purchase of Albertsons, announced last month, would combine two chains with more than 5,000 stores across the country under well-known banners like Ralphs, Safeway and Vons. Together, the two chains have total revenue of more than $209 billion. When the deal was announced, Kroger said Albertsons would pay a “special cash dividend” to Albertsons’ shareholders as “part of the transaction.”

Last week, the attorney general of Washington, D.C., Karl Racine, sent a letter from a bipartisan group of six attorneys general calling on Albertsons to pause its dividend, which is scheduled to be paid on Monday. Mr. Racine filed the federal suit against Albertsons along with California and Illinois. On Tuesday, Washington State filed its own state lawsuit seeking to block the deal.

The federal suit, which is under seal, argues that the dividend will deprive Albertsons of cash it needs to compete with other grocers, putting it in violation of the pillar of antitrust law, the Sherman Act.

“You now have a more wobbly Albertsons competing in a marketplace that we know is experiencing staffing shortages, that is also competing for customers,” Mr. Racine said in an interview. “And we think that is enough to establish a violation.”

A spokesman for Albertsons said the lawsuits “are meritless and provide no legal basis for canceling or postponing a dividend that has been duly and unanimously approved” by the grocer’s board. He said that the dividend was “not contingent” on Albertsons’ sale to Kroger and that Albertsons was “confident” of its “strong financial position.”

Kroger has said that the decision to pay out the dividend was made “solely” by Albertsons, and that it is “independent of the merger transaction.”

“Our merger with Albertsons will provide compelling benefits to America’s consumers, Kroger’s and Albertsons’ associates and communities by expanding access to fresh, affordable food and establishing a more competitive alternative to large, nonunion retailers,” a spokeswoman for Kroger said.

A representative for Cerberus Capital Management, the private equity firm that is Albertsons’ longtime and largest shareholder, did not immediately respond to a request for comment.

Legal experts said the case being brought by the states was without significant precedent. William Kovacic, a former Federal Trade Commission chairman, said he thought the lawsuit might face challenges in court.

“I don’t see courts being interested in policing those kinds of decisions,” Mr. Kovacic said. “They’re saying, ‘You’re making an improvident business decision that potentially undermines your ability to compete effectively.’ Well, why wouldn’t that apply to a whole bunch of other decisions that company might make?”

Still, Mr. Kovacic said the move could suggest that further attempts to halt the deal would be coming.

Mr. Kovacic said if he were advising the states and others that wanted to oppose the deal, “I’d be telling my team think very creatively of ways that we can throw sand in the gears.”