Rite Aid & Albertsons to Merge to Better Meet Customers' Needs

Javier Stokes
February 23, 2018

Late a year ago, drug store-and-pharmacy benefit manager CVS Health (CVS) announced it would acquire health insurance giant Aetna (AET). Under the terms of the agreement, in exchange for every 10 shares of Rite Aid common stock, Rite Aid shareholders can receive either one share of Albertsons common stock plus about $1.83 in cash, or 1.079 shares of Albertsons stock.

The new, combined company will be renamed and operate more than 4,000 pharmacies (in store and standalone) and 320 clinics across 38 states and Washington, D.C.

Boise-based grocery chain Albertsons Cos. has agreed to acquire Rite Aid Corp. Rite Aid Corp now has $2.12B valuation.

The Rite Aid deal is the latest transaction by Albertsons to expand its offerings to attract consumers.

Rite Aid Co. has a 12 month low of $1.38 and a 12 month high of $6.15.

Walgreen has said it plans to close roughly 600 overlapping stores but hasn't said where.

Albertsons Companies, which has 2,300 locations across the United States, will join Rite Aid's 2,600 locations to form a new company, the name of which has not been announced.

Graham said customers don't have to transfer their prescriptions to Walgreens, and they can continue to refill them at Rite Aid.

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Retailers have been pushing home deliveries and other customer-friendly services in the wake of expanded competition from Amazon.

Albertsons previously weighed an initial public offering but shelved the plan a year ago after Amazon acquired Whole Foods, several media organizations reported. Late past year, Rite Aid rival CVS Health Corp. said it would buy the health insurer Aetna for $69 billion. Assuming the Rite Aid - Albertsons deal goes through, the company may achieve the synergies and savings it forecasts, but will still be a many-faceted - and in my view, unwieldy - wholesaler, food retailer, and pharmacist.

A trip to the town's Rite Aid may seem typical until you take a closer look.

Miller became CEO and chairman of Rite Aid in 1999 before accepting the position with Albertsons in 2006. But it also shrank Rite Aid so dramatically at a time the pharmacy industry is only getting more competitive, giving large companies more clout to negotiate with drugmakers and other suppliers.

The deal is expected to generate run rate cost synergies of $375 million and create incremental revenue opportunities of over $3.6 billion.

Depending upon the results of cash elections, upon closing of the merger, shareholders of Rite Aid will own a 28.0 to 29.6 percent stake in the combined company, and current Albertsons Companies shareholders will own a 70.4 to 72.0 percent stake in the combined company on a fully diluted basis.

The Board of Directors will be comprised of nine directors, four of whom will be named by Albertsons (including Miller and Lenard Tessler, Vice Chairman and Senior Managing Director at Cerberus), four of whom will be named by Rite Aid (including Standley) and one of whom will be a jointly selected director. Vetr raised shares of Rite Aid from a "hold" rating to a "strong-buy" rating and set a $2.54 price objective for the company in a report on Tuesday, January 16th.

The Associated Press contributed to this article.

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