Rite Aid, Albertsons Cave To Opposition, Cancel Merger

Ahead of Thursday’s scheduled shareholder vote, Rite Aid Corporation RAD and Albertsons Companies mutually agreed to terminate their widely opposed, $24 billion merger.

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

What Happened

In February, the Wall Street Journal exposed Albertsons’ plans to buy the Rite Aid stores left after the Walgreens Boots Alliance Inc WBA transaction. The original deal exchanged each share of Rite Aid for $1.83 in cash and one share of Albertsons, or 1.079 shares of Albertsons for 10 shares of Rite Aid.

Altogether, Rite Aid shareholders would control about 29 percent of the combined company.

The deal announcement initially drove a pop in Rite Aid’s stock, but soon enough, retail investors, major shareholder Highfields Capital and advisory firms ISS and Glass Lewis opposed the deal on valuation, arguing little to no premium for Rite Aid. They claimed a merger of equals and rejected the 29-percent split, noting that the relative value of Albertsons, a private company, was up for debate.

Rite Aid and Albertsons previously contended their position but ultimately relented.

Why It’s Important

Amid challenges from Amazon.com, Inc. AMZN, Kroger Co KR and Walmart Inc WMT, and as the drug industry consolidates, the combination would have helped improve Rite Aid’s competitive position. Altogether, the pair was set to generate revenue of $83 billion.

"Strategically, the proposed merger appears to be a step in the right direction, as it provides [Rite Aid] with increased scale and diversification,” ISS had conceded in its past report.

Cerberus Capital Management, Albertsons’ private equity owner, planned to use the merger as a gateway to the public markets. The combined entity was to trade on the New York Stock Exchange.

What’s Next

Neither party will pay a termination fee, and Rite Aid will move forward as a standalone company.

"We remain focused on leveraging our network of conveniently located retail pharmacies, our EnvisionRxOptions PBM and our trusted brand of health and wellness offerings,” Standley said. “We will continue building momentum for key areas of our business like our innovative Wellness store format, highly successful customer loyalty program and expanded pharmacy service offerings, as we also enhance our omni-channel and own brand offerings to strengthen our competitive position and create long-term value for stockholders."

According to the Wednesday announcement, Rite Aid will evaluate governance changes and hold an annual stockholder meeting Oct. 30.

Rite Aid's stock originally traded up on the news, but was set to open Thursday down 11.5 percent around $1.55 a share.

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Photo credit: Mike Mozart, Flickr