Published: Thu, February 22, 2018
Markets | By Noel Gibbs

Albertsons to buy part of Rite Aid that isn't going to Walgreens

Albertsons to buy part of Rite Aid that isn't going to Walgreens

In all, the new company is expected to serve more than 40 million US customers a week at around 4,900 locations, 4,350 pharmacy counters and 320 health clinics across the U.S. Late a year ago, CVS Health agreed to buy Aetna for $77 billion.

Albertsons, whose parent is owned by a consortium of investors led by Cerberus Capital Management, operates more than 1,700 in-store pharmacies as part of its business. Depending on the exact number of shareholders choosing the stock plus cash offer or the all-stock offer, Rite Aid shareholders will own between 28% to 29.6% stake of the combined companies, which will return to the New York Stock Exchange immediately after the deal closes. Walgreen tried unsuccessfully to buy all of Rite Aid previous year but scuttled that deal after encountering regulatory resistance.

Rite Aid is one of the nation's largest drugstore chains with fiscal 2017 annual revenues of $32.8 billion.

Signs posted outside the Pepperell store say the pharmacy is now a Walgreens.

Miller told the Wall Street Journal on Tuesday the merger was a way for Albertsons and Rite Aid to stay competitive against large retailers such as Walmart and online giant Amazon. Albertsons plans to rebrand its in-house pharmacies under the Rite Aid name, and to continue operating some stand-alone Rite Aid stores. The price of the Albertsons' transaction was not disclosed. That deal could turn numerous chain's 9,800 stores into one-stop-shop locations for an array of health care needs like blood work and eye or hearing care in addition to their traditional role of filling prescriptions.

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Moody's Vice President Mickey Chadha said the deal would give the new entity the large scale and diversified revenue base needed in the highly competitive US food and drug retail environment. As competition heats up with e-retailers such as Amazon, store experiences become more important.

Albertsons previously weighed an initial public offering but shelved the plan a year ago after Amazon acquired Whole Foods, several media organizations reported.

Analysts believe that the company has the potential to earn average revenue of $5.57 Billion for the current quarter. That deal could turn numerous chain's 9,800 stores into one-stop-shop locations for an array of health care needs like blood work and eye or hearing care in addition to their traditional role of filling prescriptions.

When Walgreens' proposed acquisition of rival Rite Aid fell through past year because of regulatory resistance, Walgreens agreed to purchase about 2,000 Rite Aid locations, leaving Rite Aid a much smaller company.

Rite-Aid has always been the second largest drug chain in DE but has seen growing competition from CVS. The company operates in two business segments: the retail drug segment and the pharmacy benefit management segment.

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Under the terms of the deal announced Tuesday, Rite Aid shareholders would get $1.83 in cash and a share of Albertsons stock for every 10 shares of Rite Aid they own.

Boise-based Albertsons Cos. operate stores across 35 states and Washington, D.C., under 20 banners 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 NY.

Rite Aid Chairman and CEO John Standley would become CEO of the combined company, and Albertsons Chairman and CEO Bob Miller will be Chairman.

Under the deal, the combined company is expected to be comprised of leadership from both companies and will be dual headquartered in Boise, Idaho, and Camp Hill.

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