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Albertsons and Rite Aid scrap plans to merge

The companies have abandoned their plan to join forces

Photo (c) SweetBabeeJay - Getty Images
This week, Albertsons and Rite Aid announced they will no longer be working to merge their two companies.

The decision comes after a great deal of pushback from shareholders who argued the deal undervalued Rite Aid’s worth. In addition to boasting 4,900 locations across the United States, the merger was also expected to create a company that brought in $83 million in revenue.

“While we believed in the merits of the combination with Albertson’s, we have heard the views expressed by our stockholders and are committed to moving forward and executing our strategic plan as a standalone company,” said Rite Aid CEO John Standley in a statement.

Albertsons, however, had a different view.

“We disagree with the conclusion of certain Rite Aid stockholders and third-party advisory firms that although they acknowledged the strategic logic of the combination, did not believe that Albertsons Companies was offering sufficient merger consideration to Rite Aid stockholders,” the company said in a statement.

Additionally, the company “is unwilling to change the terms of the merger.”

Proposed deal

The idea of a merger between Albertsons and Rite Aid came in February of this year, following the fallout of a merger between Rite Aid and Walgreens in 2017. At the time, Walgreens had agreed to buy roughly 2,000 Rite Aid locations, leaving the pharmacy chain a much smaller company.

However, when Albertsons came into the picture, Rite Aid was expected to grow, as the grocery chain operates Jewel-Osco, Shaw’s, Safeway, Vons, and Acme. Under the deal, existing Rite Aid stores would remain as is, with few -- if any -- changes.

The merger would have created 4,900 stores and 4,350 pharmacy counters with 320 clinics across 38 states and Washington D.C.

“This powerful combination enables us to become a truly differentiated leader in delivering value, choice, and flexibility to meet customers’ evolving food, health, and wellness needs,” Standley said at the time.

“The combined platform positions Rite Aid to capitalize on our pharmacy expertise and expand and enhance our pharmacy footprint. We are confident that delivering improved customer experiences and value will drive growth and profitability while creating compelling long-term value for shareholders.”

Next steps

Rite Aid reported that it has cancelled a special shareholders meeting regarding the deal that was scheduled for today. Neil Saunders, managing director of analysis firm GlobalData Retail, believes the merger was created on an “overly optimistic view.”

“There was some logic in the deal that would have given Albertsons more scale in the high-growth pharmacy and health space,” he said. “It would have also granted it access to some geographic areas it does not currently serve with a pharmacy offer. However, both of these things are about ‘one plus one equaling two.’ They are not compelling reasons for a complex and costly merger.”

Saunders now believes Rite Aid’s future is “questionable,” and will most likely be looking for another group to merge with.

“After the sell-off of stores to Walgreens, [Rite Aid] lacks scale,” he said. “Given that scale is now more critical than ever in the pharmacy and health market, it will no doubt be casting around for another entity with which it can combine.”

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