By Andrew Park, Senior Policy Analyst
Cerberus Capital Management, the private equity owner of Albertsons grocery stores, is quickly moving to extract an unusually large amount of money from the grocer that would leave Albertsons in a much worse position to repay the massive debt load put on by its private equity owners. This move puts many of Albertsons’ workers and their pensions at risk.
Just days after both Kroger and Albertsons announced they would merge on October 14th, Albertsons’ Board of Directors proposed paying shareholders $3.7 billion in a one-time “special dividend”.
This unprecedented special dividend is scheduled to be paid on November 7th (to shareholders on record as of October 24th) regardless of whether the merger is successfully completed. The merger will likely face significant antitrust scrutiny given that Kroger and Albertsons, respectively make up the fourth and fifth largest grocery chains in the country.
Cerberus is able to enrich itself in this way because it effectively controls the Board of Directors that approved this special dividend. Following its 2006 acquisition of Albertsons for $350 million, which initially was a way to acquire the grocer’s real estate on the cheap, Cerberus has been able to install two of its executives on Albertsons’ Board of Directors.
The Board of Directors is clearly conflicted in this $3.7 billion special dividend. Cerberus is the largest shareholder in Albertsons with nearly a third of the company’s total shares.
Cerberus’s funds had previously already collected $374 million from Albertsons through fees and dividends from 2013 to 2018. Other Cerberus executives, Chan Galbato and Scott Wille, who sit on the Board of Directors, separately own much smaller stakes directly in Albertsons.
Meanwhile, the company and its 290,000 employees, many of them union members, will have to contend with the $6.55 billion in debt that still needs to be repaid. For context, the $3.7 billion special dividend represents nearly 56% of all the debt outstanding, and it is going to pay shareholders rather than the debt. Albertsons also reported in 2021 that its pension plans are underfunded by a shocking $4.7 billion.
Sadly, this sort of playbook where private equity firms extract dividends and real estate away from grocery chains is not new and has led to numerous bankruptcies that harm workers, shoppers, and communities, as we saw with Fairway Market, Southeastern Grocers, A&P, Tops Markets, and others.
Worse, the continued concentration of the nation’s grocers hurts everyone by driving the price of food higher, and is a major contributor to the broader increase in inflation. The number of grocery stores declined by 30% from 1993 to 2019 while the four largest grocers tripled their collective market share during that same time period to 69%. Allowing the fourth and fifth largest grocery chains to merge would only empower the combined company to drive the price of food even higher as people have even fewer choices to shop around for their basic needs.