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Albertsons-Rite Aid Deal Had Deep Roots, Filing Shows

Companies talked on and off for three years prior to solidifying deal

Albertsons Cos. and Rite Aid had been flirting for years, but things got serious after the Amazon-Whole Foods deal shook up the retail sector last summer.

That was among the details shared by Albertsons and Rite Aid as part of a stock registration statement for the combined companies, which they announced in February would merge. The deal would take Albertsons public in a reverse IPO that would give Rite Aid stockholders an interest of approximately 28% to 29.6% in the combined companies and make Rite Aid’s current CEO, John Standley, CEO of the combined entities.

Though Albertsons and Rite Aid officials had spoken about potential business combinations in 2014 and again in 2015, the events leading to their ultimate combination followed not long after events of the tumultuous summer of 2017, when Amazon announced plans to acquire Whole Foods and the proposed Walgreens acquisition of Rite Aid was downsized due to antitrust concerns.

Those events, which took place last June, were discussed as part of a meeting between Albertsons officials and the investment bank Citi in July of last year, the filing said.

On Aug. 31, Albertsons Chairman Bob Miller told officials from the bank to restart negotiations with Rite Aid. Representative of both companies spent much of the next five months exchanging proposals and due diligence, much of which centered around the ownership stake Rite Aid shareholders would have in the merged company.

The latest talks built upon previous discussions between Rite Aid and Albertsons that dated to 2014, but were interrupted when Rite Aid and Walgreens reached a merger agreement in 2015.

Albertsons' Q4 Sales Up Slightly

In a separate filing, Albertsons' preliminary figures indicated that sales and profits improved for the fourth quarter, but price investments and shrink ate into its gross profit margins.

Sales for the period, which ended Feb. 24, were $14 billion, a 1.8% improvement from the same period a year ago. Identical-store sales improved by 0.6% on slight improvements in traffic and average ticket, the company said.

Gross profit of $3.9 billion was flat from last year’s quarter last year, but fell by 40 basis points to 28.1% of sales, due mainly to investments in promotion and price in addition to higher shrink expense. Albertsons said shrink costs fell on a sequential basis from the third quarter.

Operating income was approximately $213 million, up from $186 million for last year’s fourth quarter. The increase in operating income was primarily driven by the increase in net sales and lower selling and administrative expenses, the company said.

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