(Reuters) -A state court in Washington has temporarily blocked Albertsons Companies Inc from paying a $4 billion dividend to shareholders before the grocery chain closes its proposed deal with rival Kroger (NYSE:) Co, documents filed said on Thursday.
Kroger Co snapped up Albertsons in a $25 billion deal in last month’s mega merger between the No. 1 and 2 standalone grocers to better compete against U.S. grocery industry leader Walmart (NYSE:) Inc on prices, but it was expected to run into antitrust roadblocks.
Albertsons, which was scheduled to pay the special dividend on Nov. 7 as part of the deal, was also sued by the attorneys general of District of Columbia, California and Illinois, arguing that it would weaken its ability to compete as the antitrust reviews go on.
“By eliminating its cash-on-hand and nearly doubling its debt, Albertsons will be in a weakened competitive position relative to Kroger, thereby harming grocery consumers and workers throughout Washington,” State Court Commissioner Henry Judson wrote in issuing the temporary restraining order.
Washington State Attorney General Bob Ferguson called the temporary order a “huge victory”.
“Putting the brakes on this $4 billion payment is the right thing for Americans shopping at their local grocery store,” he said in a statement.
A hearing on the case is scheduled for Nov. 10.
In its statement, Albertsons said on Thursday the court order was based on the “incorrect assertion” that the dividend payout would weaken its competitiveness while antitrust agencies review the proposed merger.
Albertsons called the lawsuits brought forward by the AGs “meritless,” and said the company had limited debt and significant free-cash flow and was in a strong position financially.
The AGs have also raised concerns that a dividend payout would make the retailer strapped for cash, adding that it would hamper the company’s ability to price competitively and maintain staffing and staff wages and benefits.