Albertsons $4 bln dividend kept on hold by Washington court

Nov 10 (Reuters) - A state court in Washington on Thursday said it will extend a temporary block that has prevented Albertsons Companies Inc (ACI.N) from paying a $4 billion dividend to its shareholders before the grocery chain closes its proposed deal with rival Kroger Co .

Judge Ken Schubert of King County Superior Court set a hearing for Nov. 17 to further consider whether to prolong an existing order prohibiting the dividend payment. The judge said at a hearing on Thursday that he anticipated live testimony next week. A temporary restraining order was set to expire on Thursday.

Lawyers for Albertsons and Washington state, which sued over the dividend, agreed at a hearing on Thursday to allow the temporary hold to run at least until Schubert's hearing.

Schubert said in court that he believes the state faces an "uphill" legal fight to block the dividend. He said he was not aware of a case in which a court granted an injunction in a similar dispute.

A lawyer for Washington state, Eric Newman, said on Thursday that the court was moving too quickly. "If we lose next week, the party is over. They are going to spend the money. It's gone. It's too important not to do it right."

Attorney Michael Rosenberger, representing Albertsons, told Schubert, "We believe it is not in the public interest to delay this hearing any further."

Kroger said in October it was buying Albertsons in a $25 billion deal that would merge the No. 1 and 2 standalone grocers. The U.S. grocery industry leader is Walmart Inc (WMT.N).

Albertsons, which had been scheduled to pay the special dividend on Nov. 7, was also sued by the attorneys general of the District of Columbia, California and Illinois, who argued that such a payment would weaken the company's ability to compete as the antitrust reviews proceed. That court was asked to put another temporary stop on the payment but declined to do so. read more

The state attorneys general have also raised concerns that a dividend payout would leave the retailer too cash-strapped to price competitively and maintain staffing and staff wages and benefits.

Albertsons has called the lawsuits "meritless," and reiterated that it had limited debt and significant free-cash flow and was in a strong position financially.

Reporting by Mike Scarcella, Peter Henderson and Diane Bartz; Editing by Sandra Maler and Leslie Adler

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