While Albertsons has said the dividend was planned before the companies started talking about a potential $24.6 billion merger, they disclosed the payout “as part of the transaction” when they announced their agreement Oct. 14.
California, Illinois and the District of Columbia filed a separate request for a temporary restraining order against the two grocers in federal court in Washington, DC, on Wednesday.
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“I believe there is a well-grounded fear of immediate invasion of” consumer rights of Washington state residents, King County Superior Court Commissioner Henry Judson in Seattle said during a hearing Thursday.
Jonathan Mark, senior assistant attorney general for Washington, asked Judson to “simply preserve status quo,” arguing that doling out the dividend could result in Albertsons experiencing liquidity issues and difficulties investing in its employees and restocking shelves to meet consumer needs.
Michael Rosenberger, an attorney representing Albertsons, argued that the order sought by the state “is truly extraordinary” and “unprecedented” as it challenges a decision to reward shareholders approved by a corporate board of directors.
A hearing on whether to keep the dividend on hold indefinitely while the Washington litigation plays out was set for Nov. 10 before Judge Ken Schubert.
Spokespersons for Albertsons and Kroger didn’t immediately respond to requests for comment.
Albertsons has said it would pay for the dividend by using $2.5 billion in cash on hand, with the rest of the money coming from loans. The payment to investors was scheduled for Nov. 7.
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Cerberus initially bought into the grocer in 2006 and currently owns a stake of about 28%.