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Our grocery money's gone, your honor!

You don’t have to have seen 'Wall Street: Money Never Sleeps' to get why this sucks ass!

November 11, 2022

Editor’s note: Miss me this week? Sorry about that! I was in Verona, Italy, speaking on a panel at Vinitaly’s Wine2Wine conference with some VinePair colleagues. We talked about the intersection of beverage alcohol and NFTs, and like an hour later FTX imploded. Huh! Anyway, thanks for bearing with me, normal schedule resumes next week.—Dave.

It’s been a minute since we last checked in on the proposed mega-merger between Kroger and Albertsons, the second- and fourth-largest supermarket chains in the United States. When the former announced its intent to buy the latter for around $25 billion in early October, anti-trust types and grocery industry experts alike immediately slammed the deal for the amount of market power it would consolidate in the hands of a single firm—power it could wield against its own labor force, the municipal governments it operates in, and of course, its suppliers. “If you’re a craft brewer, I don't understand how this could possibly benefit you in a million years,” Benjamin Lorr, author of The Secret Life of Groceries, told Fingers at the time.

Another aspect of this deal that people rightfully hate is its the special $4 billion dividend that Albertsons is trying to deliver to its shareholders in advance of the merger’s actual closing date (which, again, may never actually happen, if the Department of Justice and the Federal Trade Commission get their collective shit together.) Hey, what’s a quick $4 billion amongst friends massive private-equity firms and the workforces and communities they do business with, amirite?had a good recap on this nifty bit of financial fuckery the other day (emphasis mine):

Albertsons is a public company, but it is primarily owned by two private equity firms, Cerberus Capital and Apollo, and these funds have been trying to sell the company for awhile. But they know that the merger is going to take years to play out, and may be blocked, so as part of the merger deal they decided to grab all the cash that Albertsons has, and even put it into debt, in order to cash out with a special $4 billion payout.

You don’t have to have seen Wall Street or even Wall Street: Money Never Sleeps to understand why this maneuver, legal though it may be, sucks ass! Siphoning off a third of Albertsons current value (roughly 70% of which will go to Cerberus and Apollo, according to a report from the Center for Economic and Policy Research) allows massive institutional shareholders to take the money and run regardless of what happens in the actual merger proceedings. The firms’ unionized workforces stand to lose if the dividend goes through: it’d jeopardize their pension funds, and make it harder to negotiate for future salary increases. It’d also have the knock-on effect of making the actual merger—which will reduce competition, bring about store closures, and make it tougher for smaller producers to access the market—a foregone conclusion. As Eileen Applebaum at CEPR pointed out:

While the general view of financial markets is that the FTC and the courts will not let the merger go through, the payment of this special dividend sets Albertsons up for failure and provides Kroger with a powerful “failing firm” defense of its merger proposal. Kroger can argue that Albertsons will face bankruptcy if the merger is not approved.

The fact that the company effectively rendered itself insolvent with a $4 billion “dividend capitalization,” as it’s known in the jargon, would presumably be hand-waved away at that point. Our grocery money’s gone, your honor! Stop asking where it went and start signing off on this merger!

If this seems like it should be illegal to you, you’re not alone: attorneys general in seven states have sued to block this specific portion of the Kroger/Albertsons tie-up, which was originally scheduled to hit November 7th. A Washington, D.C. judge recently rejected three of those states’ requests in federal district court; it will of course shock you to learn the robed wizard of impartiality behind that ruling is a former Federalist Society member who joined the federal bench during the Trump administration. (Probably just a coincidence.)

But in Washington the state, an elected county superior court judge agreed with the state AG that this special dividend was worth a closer look, blocking and then extending a restraining order because it created “‘a well-grounded fear of immediate invasion of’ Washington’s right to protect its consumers and prevent anti-competitive behavior.” While it’s refreshing to see, like, anything happen in the face of brazen corporate looting in this country, the injunction is temporary. The next hearing on the matter is set for November 17th. Stay tuned.

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