Retail merger terminated: Rite Aid and Albertsons call off US$24 billion deal

09 Aug 2018 --- Albertsons Companies, one of the US’ largest grocery retailers, and leading drugstore chain Rite Aid Corporation have mutually agreed to terminate their previously announced merger agreement. The US$24 billion deal including debt, announced in February, has faced push-back from a number of retail investors as well as top ten shareholder Highfields Capital Management. The retailers said late Wednesday that they mutually agreed to remain separate. They canceled a shareholder meeting on the deal planned for Thursday.

Investors who opposed the deal said that it undervalued Rite Aid’s retail business and its prescription-drug benefit service.

Albertson’s issued the following statement in regard to the termination: “Albertsons Companies believes that the strategic rationale of the Rite Aid combination was compelling, including the US$375 million of cost synergies and US$3.6 billion of identified revenue opportunities. We disagree with the conclusion of certain Rite Aid stockholders and third-party advisory firms that although they acknowledged the strategic logic of the combination, did not believe that Albertsons Companies was offering sufficient merger consideration to Rite Aid stockholders. Consistent with Albertsons Companies’ disciplined approach to mergers and acquisitions, and after careful consideration of all information available to our Board of Directors through today, we were unwilling to change the terms of the merger.”

Rite Aid CEO John Standley, meantime, said in a statement, "While we believed in the merits of the combination with Albertsons, we have heard the views expressed by our stockholders and are committed to moving forward and executing our strategic plan as a standalone company."

An Albertson's statement further read: “We remain excited about the improving momentum, financial strength, and industry leadership of Albertsons Companies. Our team has remained laser-focused on execution to drive our financial and operating performance while ensuring we continue to meet and exceed the needs of our customers. As a result, we have achieved a number of significant milestones, including delivering consecutive quarters of top-line and bottom-line growth, and as part of the Safeway merger, which is delivering higher than expected synergies, we will be completing the systems integration of the Albertsons stores to in-house systems in September. We also have continued to differentiate ourselves through our best-in-class ‘Own Brands’ portfolio that is expected to add over 1,100 new items this year as well as through our expanding eCommerce offerings, which grew 108% year-over-year in the first quarter.” 

“The operational improvements we are making to meet our customers’ needs are driving our improved results. We are confident that our 275,000 dedicated employees will continue to execute on our business plan to enhance our customers’ experiences and lead the grocery industry with new innovations,” the statement concluded.

Albertsons Companies also reaffirmed its fiscal 2018 outlook, which includes an expectation for Adjusted EBITDA of $2.7 billion.

At the time of the initial merger announcement the companies stated that: “The combination of Albertsons Companies’ billion-dollar own brands, including O Organics and Lucerneâ, and its manufacturing and operating capabilities, with Rite Aid’s own brands in health and wellness, as well as its pharmacy expertise will allow the combined company to drive growth opportunities and efficiencies across its purchasing, marketing, manufacturing, and merchandising functions.”

Our initial coverage at the time of the merger agreement can be found here.