On Wednesday, hopes for a merger between Rite Aid and Albertsons were dashed, when the companies announced that the deal was off.
In a statement, Rite Aid Chief Executive John Standley said that the pharmacy chain had been unable to convince shareholders of the merits to the merger. Grocery giant Albertsons, meanwhile, issued a statement saying it disagreed with Rite Aid stockholders’ concerns that the deal would undervalue the chain and that it had refused to change the terms of the deal.
If the collaborative effort had gone ahead, Rite Aid shareholders would have owned some 30% of the combined companies.
In February, reports emerged that the two parties were planning a cash-and-stock deal granting Albertsons investors 71% of the combined company. The rest was going to be in the hands of Rite Aid investors, with the combined company worth an estimated $24 billion.
Albertsons IPO
At the time, there was speculation that the deal could allow Albertsons to go public. As a first step though, it would be a strategic move towards making Albertsons more competitive in an increasingly saturated retail space. (In 2015, Albertsons pulled off another merger, tying itself up with Safeway.)
Back in 2015, the idea of acquiring all of Rite Aid had piqued the interest of another player — Walgreens, the second-largest pharmacy store chain in the U.S. after CVS Health. However, the deal failed to gain regulatory approval, and instead Walgreens settled for buying part of Rite Aid—some 2,000 stores. This created a window of opportunity for someone else to step in, namely Albertsons.
Store Synergies
The deal was partially intended to increase foot traffic to Albertsons’ in-store pharmacies (which would have been rebranded to Rite Aid) and to increase the likelihood that customers heading to pick up their medication would be tempted to pick up some groceries on their way out.
It would have also facilitated Albertsons’ largest investors, including private equity firm Cerberus, to cash out of their investments in the grocery chain.
Rite Aid, meanwhile, would have benefitted from Albertsons’ digital know-how and financial strength.
Both parties will now have to eye other strategic plans in an effort to stay buoyant in their respectively competitive markets.