California, others ask court to temporarily stop $4 bln Albertsons dividend payment

By Diane Bartz

WASHINGTON, Dec 1 (Reuters) - The attorneys general of California, Illinois and Washington D.C. asked a federal court on Thursday for a preliminary injunction that would prevent Albertsons Companies Inc, which is being purchased by rival Kroger Co, from paying a $4 billion dividend to shareholders.

The state officials said in a court filing that Kroger, which does not yet own its rival, agreed with Albertsons that Albertsons would pay the dividend at the beginning of the merger review.

"Payment of the special dividend, in conjunction with the restrictions defendants' merger agreement imposes on Albertsons' ability to borrow money, likely will hamper Albertsons' ability to compete with Kroger and other grocers, leaving shoppers facing higher prices, worse service, less innovation, closure of their local Safeway or other Albertsons supermarket, or all of the above," they said in the filing.

California Attorney General Rob Bonta said in a statement that he was determined to stop the $4 billion handout. "We're not going to stop fighting to make sure that the proposed merger doesn't harm California families, workers, and farmers," he said.

Albertsons did not immediately respond to a request for comment. The company has said that it was in a strong position financially and that the dividend will not hurt it.

The lawsuit was filed in federal court in Washington, D.C.

Albertsons had been initially scheduled to pay the special dividend on Nov. 7.

A court on the other side of the country, in Washington state, has put a temporary restraining order on the payment and said it would continue to remain on hold until a hearing scheduled for Dec. 9.

Kroger snapped up Albertsons in a $25 billion deal in last month's mega merger between the No. 1 and 2 standalone grocers, saying that the deal would help it better compete against U.S. grocery industry leader Walmart Inc on prices. The planned acquisition has come under sharp criticism on antitrust grounds. (Reporting by Diane Bartz; editing by Diane Craft)