REBusinessOnline

Albertsons to Buy Drugstore Chain Rite Aid

The integrated company will operate about 4,900 locations, 4,350 pharmacy counters, and 320 clinics across 38 states and Washington, D.C. Pictured above is a Rite Aid location in Beaverton, Ore.

BOISE, IDAHO — Boise-based grocery chain Albertsons Cos. has agreed to acquire Rite Aid Corp. (NYSE: RAD), one of the nation’s largest drugstore chains, for an undisclosed sum. The integrated company will operate about 4,900 locations, 4,350 pharmacy counters, and 320 clinics across 38 states and Washington, D.C., serving 40 more than million customers per week.

The majority of Albertsons’ pharmacies will be rebranded as Rite Aid. The company will continue to operate Rite Aid standalone pharmacies.

The Rite Aid merger will allow Albertsons to go public. 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. Depending upon the results of cash elections, upon closing of the merger, shareholders of Rite Aid will own a 28 percent to 29.6 percent stake in the combined company, while current Albertsons shareholders will own a 70.4 percent to 72.0 percent stake in the combined company on a fully diluted basis.

The combined company plans to seek expanded opportunities in Albertsons’ many brands, including O Organics and Lucerne, along with its manufacturing and operating capabilities. Rite Aid brings its own health and wellness brands to the table, including B4Y and Daylogic. Its pharmacy expertise will allow the combined company to drive growth opportunities and efficiencies across its purchasing, marketing, manufacturing and merchandising functions, according to Rite Aid.

“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,” says John Standley, Rite Aid chairman and CEO. “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.”

On a pro forma basis, the combined company is expected to generate year-one revenues of about $83 billion.

The board of directors will be composed of nine directors: four from Albertsons, four from Rite Aid and one jointly selected director. The boards of directors of both companies have approved the transaction unanimously. The merger is expected to close early in the second half of 2018, subject to the approval of Rite Aid’s shareholders, regulatory approvals and other customary closing conditions.

Credit Suisse and Goldman Sachs & Co. LLC served as lead financial advisors to Albertsons, while Schulte Roth & Zabel LLP acted as legal advisor. Bank of America Merrill Lynch also served as financial advisor to Albertsons and is providing committed financing for the proposed transaction together with Credit Suisse and Goldman Sachs. Citi served as exclusive financial advisor to Rite Aid, while Skadden, Arps, Slate, Meagher and Flom LLP acted as legal advisor.

Albertsons is one of the largest food and drug retailers in the United States, with stores across 35 states and the District of Columbia under 20 brands, including Albertsons, Safeway, Vons, Jewel-Osco, Shaw’s, Acme, Tom Thumb, Randalls, United Supermarkets, Pavilions, Star Market, Haggen and Carrs, as well as meal-kit company Plated based in New York City.

A group of investors led by private equity firm Cerberus Capital Management for approximately $3 billion in 2006. The Cerberus-led investment consortium includes Kimco Realty Corp., Klaff Realty, Lubert-Adler Partners LP and Schottenstein Stores Corp.

Immediately following completion of the merger, Albertsons will have approximately 392.9 million shares outstanding on a pro forma and fully diluted basis. Albertsons shares are expected to trade on the New York Stock Exchange under a yet-to-be-announced ticker symbol.

Rite Aid’s stock closed at $2.20 per share on Tuesday, Feb. 20, down from $5.95 per share one year ago.

— Nellie Day

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