Influential Analyst Rating Changes: GrubHub Inc. (GRUB), Rite Aid Corporation (RAD)
22 February, 2018, 00:58 | Author: Franklin Nunez
The Albertsons Cos. and Rite Aid Corp. have formed an agreement under which the privately held grocer will merge with the publicly traded drug store chain.
In all, the new company is expected to serve more than 40 million USA customers a week at around 4,900 locations, 4,350 pharmacy counters and 320 health clinics across the U.S. If RAD shareholders are receiving at least 28% of a $24 billion company, that amounts to about $6.72 billion. Walgreen tried unsuccessfully to buy all of Rite Aid past year but scuttled that deal after encountering regulatory resistance.
The proposed deal includes the Rite Aid stores that were not acquired by Walgreens in 2015. The saving grace may be that all Rite Aid - Supervalu direct competitors, think Kroger and Ahold Delhaize, as well, face the same dilemma of needing scale to survive.
Walgreen has said it plans to close roughly 600 overlapping stores but hasn't said where.
Miller became CEO and chairman of Rite Aid in 1999 before accepting the position with Albertsons in 2006. Shareholders can also choose to keep all shares in Albertsons, making it an all-share transaction at 10 RAD shares per 1.079 Albertsons share. A tie-up with Albertsons, which ownsSafeway, Shaw's, and other chains, would give the convenience store operator the opportunity to do so.
Common shareholders want to know how profitable their capital is in the businesses they invest it in.
Retailers have been pushing home deliveries and other customer-friendly services in the wake of expanded competition from Amazon. (NASDAQ:AMZN) announced its purchase of Whole Foods Market, Albertson's put the IPO on hold.
Rite Aid, which employs 89,000 people, reported $5.4 billion in revenue in its fiscal third quarter, which ended December 2 of past year.
The grocery chain has stepped up to pick up the remaining Rite Aid storefronts not already involved in its $4.3 billion sale of almost 2,000 stores to Walgreens, a deal struck after the companies failed to complete an even larger transaction in 2015.
Rite-Aid has always been the second largest drug chain in DE but has seen growing competition from CVS.
The business of distributing and selling pharmaceuticals is seeing dramatic changes as well.
The new company - which is expected to be traded on the New York Stock Exchange following the close of the deal - also will have an expanded footprint and be ranked first or second in 66% of the top metropolitan areas in the United States and will be ranked first or second in 70% of pharmacy locations. (Rite Aid's market cap was $2 billion before the Albertsons deal was announced, a tiny fraction of that of its rivals.) And Walgreens wouldn't go to all that effort to pick up anything but the best Rite Aid locations.
"Rite Aid and Albertsons will work together to ensure a smooth transition as the companies integrate, working hard to maintain customer and patient trust every step of the way", she said.
Rite Aid Chairman and CEO John Standley will become CEO of the new entity, while Albertsons Cos.
Under the deal, the combined company is expected to be comprised of leadership from both companies and will be dual headquartered in Boise, Idaho, and Camp Hill.
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The market experts are predicting a 13.64% rally, based on the high target price ($2.5) for Rite Aid Corporation shares that is likely to be hit in the 52 weeks.
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