In a move officials characterized as both a strategic and financial transformation, Albertsons Cos. and the drug store chain Rite Aid on Tuesday said they would merge.
Under the terms of the agreement, Rite Aid shareholders will have the right to elect to receive either one share of Albertsons common stock plus approximately $1.83 in cash, or 1.079 shares of Albertsons stock for every 10 shares of Rite Aid stock. Depending on the results of cash elections, shareholders of Rite Aid upon closing will own 28% to 29.6% of the combined company, while current Albertsons shareholders will own a 70.4% to 72% percent stake. Following the close of the transaction and the share exchange, Albertsons Cos. shares are expected to trade on the New York Stock Exchange.
In Rite Aid, Albertsons gets a vehicle to the public markets it sought but could not complete on its own. In the meantime, Rite Aid will find a new home for more than 2,500 drugstores orphaned by antitrust concerns in last year’s acquisition of most of its stores by Walgreens Boots Alliance.
John Standley, Rite Aid’s CEO, will become CEO of the combined company, which will take on a new name to be announced in the future. Bob Miller, Albertsons’ current CEO, will continue as chairman.
“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,” Standley said in a statement. “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.”
Standley is a former CEO of the grocery retailer Pathmark, and departed for Rite Aid upon Pathmark's sale to A&P in 2007.
“The hallmark of Albertsons Cos.’ business has been to become the favorite local supermarket of our customers,” said Miller. “We have always put our customers first, and our combination with Rite Aid will enable us to even better serve the valuable pharmacy customer by providing a fully integrated one-stop shop for our customers’ food, health and wellness needs. I have long known the excellent management team at Rite Aid, and we share a singular focus on superior customer service and a clear vision and strategy to become the favorite local supermarket and pharmacy to shoppers in every neighborhood we serve.”
The deal would nearly double the number of retail outlets for the grocery chain. Combined, Albertsons and Rite Aid accounted for approximately $92.8 billion in sales in 2017, consisting of $32.8 billion for Rite Aid and $60 billion for Albertsons. They said Albertsons' pharmacies would be rebranded with the Rite Aid name while continuing to operate the Camp Hill, Pa.-based company’s 2,569 stores in 19 states.
Walgreens in 2015 attempted to buy Rite Aid, but revised the deal amid opposition from antitrust regulators and eventually left Rite Aid with stores mainly in the Northeast and the West Coast, where Albertsons also maintains a strong presence. The new company will be ranked first or second in 66% of the top metropolitan areas in the U.S. following the deal, and will be ranked first or second in 70% of pharmacy locations.
Officials said the combined company will be positioned to drive incremental growth by deepening existing relationships and expanding reach across higher-value pharmacy customers through a full suite of health and wellness capabilities, including specialty pharmacy offerings and in-store RediClinics in larger Albertsons stores and stand-alone Rite Aids.
The new company said it would 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.
The companies said they also see opportunity to combine their private brands, including Albertsons' O Organics and Lucerne lines and Rite Aid’s Daylogic.
Financial highlights include Albertsons’ move to public markets—which it has sought to address debts incurred through its Safeway and other acquisitions for several years, but put off in a slow market marked by soft sales growth impacted by food deflation—and by market valuations slowed by last summer’s Amazon-Whole Foods deal.
Officials said the combined business would benefit from an enhanced financial profile and solid capital structure, which will support growth and expansion. On a pro forma basis, the combined company is expected to generate year one revenues of approximately $83 billion and year one adjusted pro forma EBITDA of approximately $3.7 billion, including run-rate cost synergies.
The combined company said it expects to deliver annual run-rate cost synergies of $375 million in approximately three years and access potential annual revenue opportunities of $3.6 billion. Cost synergies will be achieved primarily through procurement savings; leveraging efficiencies realized by a combined supply chain, combined distribution and fulfillment channels; and leveraging manufacturing capabilities, the companies said.