Raiders of the Lost Equity

As has been reported, Kroger, in October 2022, announced that it would buy its smaller competitor, Albertsons, for $24.6 billion. The combined companies would own about 5,000 stores, making it the dominant corporate chain in the country. The deal has already faced intense scrutiny and criticism from the Senate antitrust subcommittee. 

Underlying the antitrust issues is another significant aspect of the proposed merger  that is sure to be under a microscope. According to an article in the New York Times, Cerberus Capital Management, the largest investor in Albertsons, is  planning to pay $4 billion to its investors, far in advance of the deal closure.1

The outcome of the entire merger is, of course, still in doubt because of the antitrust issues. But there could be another side benefit to the prepayment of the dividend if the deal goes through. As has been tried in some other situations, the $4 billion dividend, 16% of the purchase price, might result in reducing the actual purchase price so that challenges of dissenting shareholders to the price of the transaction could be either discouraged or have a more difficult time winning a dissent. The mixture of the dividend with the purchase price might obfuscate the real value of the deal, limiting the value of any dissent. Stay tuned, this will be an interesting ride.

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