Albertsons, Rite Aid to Merge

The Albertsons Cos. and Rite Aid Corp. have revealed an agreement under which the privately held grocer will merge with the publicly traded drug store chain. The transaction is anticipated to close in the second half of 2018.

Under the terms of the agreement, in exchange for every 10 shares of Rite Aid common stock, Rite Aid shareholders will have the right to elect to receive either one share of Albertsons Cos. common stock plus approximately $1.83 in cash, or 1.079 shares of Albertsons Cos. stock. Depending upon the results of cash elections, when the merger closes, shareholders of Rite Aid will own a 28 percent to 29.6 percent stake in the combined companies, and current Albertsons Cos. shareholders will own a 70.4 percent to 72.0 percent stake in the combined companies on a fully diluted basis.

Immediately following completion of the merger and assuming that all Rite Aid shareholders elect to receive shares plus cash, Albertsons Cos. will have approximately 392.9 million shares outstanding on a pro forma and fully diluted basis. Following the close of the transaction and the share exchange, Albertsons Cos.’ shares are expected to trade on the New York Stock Exchange.

Current Rite Aid Chairman and CEO John Standley will become CEO of the new entity, and current Albertsons Cos. Chairman and CEO Bob Miller will be chairman. The new organization is expected to comprise leadership from both companies and will be based in Boise, Idaho, and Camp Hill, Pa., where Albertsons Cos. and Rite Aid, respectively, currently are based.

The board of directors will consist of nine directors, four of whom will be named by Albertsons Cos. (including Miller and Lenard Tessler), four of whom will be named by Rite Aid (including Standley), and one of whom will be a jointly selected director. A majority of the board will be independent. Lenard Tessler will serve as lead director.

The integrated company will operate about 4,900 locations, 4,350 pharmacy counters and 320 clinics across 38 states and Washington, D.C., serving more than 40 million customers per week. Most Albertsons Cos. pharmacies will be rebranded as Rite Aid, and the company will continue to operate Rite Aid stand-alone pharmacies.

Better Meeting Customers’ Needs

The combination will provide customers with flexible and convenient access to a full range of food, health and wellness offerings, and will deliver significant value to customers, employees, and shareholders by:

• Enhancing its geographic footprint and creating local networks in attractive geographies: The new company will have an expanded footprint and be ranked first or second in 66 percent of the top metropolitan areas in the United States, and first or second in 70 percent of pharmacy locations.
• Leveraging a strong pharmacy network and Rite Aid’s pharmacy benefit management company, EnvisionRxOptions, to drive customer growth: The combined company will be positioned to drive incremental growth by deepening existing relationships and expanding reach across higher-value pharmacy customers. This will be achieved through a full suite of health-and-wellness capabilities, including specialty pharmacy offerings and in-store RediClinics in larger Albertsons Cos. stores and stand-alone Rite Aid stores. In addition, investing in preferred relationships with EnvisionRxOptions, other pharmacy benefit managers, and regional payors is expected to drive prescription growth.
• Using data analytics and integrated loyalty programs to drive growth and target new customers: The new company will capitalize on enhanced data and analytics to unlock profitable growth through new customer acquisition, new merchandising programs and demand forecasting. It will also create cross-branded opportunities for its loyalty programs, improving connections across a combined current base of 25 million active loyalty program participants.
• Combining strong own-brand portfolios with an extensive manufacturing and distribution network to drive revenue growth and operating efficiencies: The combination of Albertsons Cos.’ billion-dollar own brands and manufacturing and operating capabilities with Rite Aid’s own brands in health and wellness and its pharmacy expertise will allow the combined company to drive growth opportunities and efficiencies across its purchasing, marketing, manufacturing and merchandising functions.
• Serving customers when, where and how they want to shop: The combined company’s expanding omnichannel platform will provide customers with convenience, choice and flexibility through multiple in-store formats, digital channels, and same-day food and prescription delivery options from stores and via Drive Up & Go.

“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,” said Standley. “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.”

Rite Aid rival Walgreens Boots Alliance attempted a merger with Rite Aid Corp. that terminated last June, instead entering a new agreement to buy almost half of the drug chain’s stores. The eventual agreement was for the purchase of about 2,000 stores, three distribution centers and related inventory from Rite Aid Corp. The $4.38 billion deal forced Walgreens to close about 600 of its own stores, most of the stores Rite Aid locations located within a mile of another Walgreens-owned store.

Albertsons Cos. is backed by an investment consortium led by Cerberus Capital Management, which also includes Kimco Realty Corp., Klaff Realty LP, Lubert-Adler Partners LP and Schottenstein Stores Corp.