Rite Aid Corp. (RAD) and Albertsons have agreed to call off their multibillion-dollar merger after failing to convince investors that joining forces would leave them better equipped to tackle growing competition from Amazon.com Inc. (AMZN) and others.
The announcement came just hours before Rite Aid shareholders were due to vote on whether to accept Albertsons proposal to create a food and drugs retail powerhouse with $83 billion in annual sales. (See also: The Top 5 Rite Aid Shareholders.)
“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 stand-alone company,” said Rite Aid’s CEO John T. Standley in a statement.
Rite Aid’s shares have fallen about 22% since Albertsons' offer was first announced in February, reflecting concerns that the grocery firm’s bid undervalued the drugstore chain.
In the statement, both companies confirmed that they won’t be required to pay a termination fee.
Ride Aid “Notably Challenged”
News that the merger has collapsed was not well-received by some on Wall Street. Ross Muken, a partner at Evercore ISI, said that Rite Aid is “notably challenged” as a standalone business, with a “sub-scale regional pharmacy presence,” according to the Financial Times. The Camp Hill, Pennsylvania-based drugstore chain downgraded its guidance for the 2019 fiscal year on Monday, due to purchasing challenges in the generic drug market.
Prior to receiving Albertsons' offer, Rite Aid planned to bolster its market position in the pharmacy business by merging with Walgreens Boots Alliance Inc. (WBA). However, talks between the two drugstore chains went stale after antitrust authorities warned that the deal was unlikely to get regulatory clearance.Rite Aid, which responded by selling 1,932 stores and three distribution centers to Walgreens for $4.38 billion, then received a cash-and-stock offer for its remaining assets from Albertsons in February. Together, the companies estimated that they would be worth more than $20 billion, including debt, and be able to serve 40 million customers a week across 38 states, giving them a better platform to compete against a rise in online competitors.
However, Rite Aid shareholders never warmed to the proposal, describing Albertsons' $24 billion bid to take control of roughly 71% of the combined entity as a lowball offer. (See also: Why Rite Aid Shareholders Oppose Albertsons Merger.)