Grocer Albertsons Cos. will buy drugstore chain Rite Aid Corp. in a deal that would accelerate the remaking of the U.S. retail and health care industries.
The takeover serves several purposes. Rite Aid will get a buyer after a failed merger with another chain last year. Albertsons will add new locations and size amid increasing pressure from online competitors. And the grocer's private-equity owners will exit their 2006 investment without having to go through an initial public offering in a turbulent market.
The combined companies will have about 4,900 stores, including 4,350 pharmacy locations, in 38 states, they said in a statement. The Albertsons pharmacies will be re-branded under the Rite Aid name.
Retailers have been under growing pressure from online competitors like Amazon.com Inc., and the corner drugstore has been no exception. While the prescription drug business at pharmacies has been relatively stable, front-of-the-store sales have been in decline. Giant retailers like Walmart Inc. are also looking to play a bigger role.
The result has been consolidation.
CVS Health Corp. agreed last year to pay about $68 billion for health insurer Aetna Inc., while The Wall Street Journal recently reported that Walgreens Boots Alliance Inc. is in early talks to buy drug distributor AmerisourceBergen Corp. after its takeover of Rite Aid was scaled back last year for antitrust reasons and resulted in the purchase of only some of the stores.
The deals "demonstrate some of the threats (declining reimbursement, Amazon, etc.) that drug retailers have found themselves under and each of the large public players appears to be trying to solve this issue in a different way," Ross Muken, an analyst with Evercore ISI, said in a note.
The companies said the deal is expected to close in the second half of the year.
"Both players are under massive profit pressure and there is no clear solution to their competitive/margin threats via this combination," Muken said.
Rite Aid shareholders will have a choice whether to take all stock or a combination of stock and cash. After it closes, Albertsons shareholders will own 70.4 percent to 72 percent of the business, the companies said.
The new corporate entity would have a value of roughly $24 billion, including debt, The Wall Street Journal reported.
The deal also comes after Rite Aid's failed attempt to sell itself to Walgreens. That merger fell apart amid scrutiny by U.S. antitrust authorities. Walgreens eventually won approval to buy 1,932 stores, three distribution centers and related assets for $4.4 billion in September.
Rite Aid CEO John Standley will serve as chief executive officer of the new company, the companies said, while his counterpart at Albertsons, Bob Miller, will be the chairman. The companies haven't decided on a name for the new company.
Albertsons, which is backed by private-equity firm Cerberus Capital Management LP, last year put plans for an initial public offering on hold after Amazon acquired Whole Foods Market Inc., according to people familiar with the situation.
Cerberus acquired Albertsons in 2006, and then acquired more of the brand's stores in a $3.3 billion deal with Supervalu Inc. in 2013. It later merged the business with Safeway Inc., creating a grocery chain of 2,000 stores and 250,000 employees across the U.S. It now has about 2,323 stores and 280,000 workers.
Information for this article was contributed by Katerina Petroff, Melissa Mittelman and Molly Smith of Bloomberg News.
Business on 02/21/2018