This deal follows Rite Aid’s failed attempt in 2015 to sell to its 4,600 stores to Walgreens. That deal was whittled down by regulators to a purchase of 1,932 stores for $4.37 billion.
Rite Aid has a market value of $2.31 billion. The combined company is expected to have roughly $14 billion in net debt, according to credit ratings firm Moody’s. That figure could vary depending on how shareholders choose to be compensated for the deal.
As part of the deal, Rite Aid shareholders will have the right to exchange 10 shares of Rite Aid common stock for one share of Albertsons common stock plus roughly $1.83 in cash or 1.079 shares of Albertsons stock. Depending on the shareholders’ elections, Rite Aid will own a 28 percent to 29.6 percent stake in the combined company and current Albertsons shareholders will own 70.4 percent to 72 percent, on a fully diluted basis.
The new company’s revenues would be about $83 billion.
The two will have about 4,900 locations, 4,350 pharmacy counters and 320 clinics across 38 states and the District of Columbia. Most Albertsons’ pharmacies will be rebranded as Rite Aid, and the company will continue to operate Rite Aid’s stand-alone stores.
Upon deal approval, Rite Aid Chairman and CEO John Standley will become CEO of the combined company, and Albertsons chairman and CEO Bob Miller will be chairman of the new company.
Shares of Rite Aid were up 1.2 percent in late morning trading after skyrocketing as much as 30 percent before the opening bell.
The deal with Albertsons underlines the change in course that retailers are taking, no longer looking to expand only by real estate footprint, but also by capability. Increasingly, retailers are looking to pharmacies for this expansion, which can take advantage of the frequency with which people buy prescription drugs. There is also the opportunity to use store footprints as a base for drug delivery and pick up.
CVS Health late last year announced its intent to acquire Aetna for roughly $69 billion. Walgreens is now said to be in early-stage talks to acquire drug wholesale company AmerisourceBergen, The Wall Street Journal has reported.
For Albertsons, the deal presents an opportunity for its private equity owner, Cerberus Capital Management, to bring the supermarket chain onto the public market a dozen years after its formation.
Cerberus and a consortium of investors put together Albertsons in 2006. It then later merged with the grocer Safeway in 2015.
Cerberus tried to take Albertsons public soon after its Safeway deal, filing for an IPO that year. As it touted its roughly $24 billion valuation, it pointed investors to Kroger’s then strong stock performance and the opportunity it had to further buy up regional grocers.
It pulled its IPO plans at the last minute though. The week Albertsons was supposed to price its IPO, Walmart lowered its earnings forecast, dragging its stock valuation and those of its peers lower. Companies going public look to competitors as reference points for their own valuations.
Albertsons’ IPO remained shelved for months, waiting for Kroger’s stock to rebound. It also toyed with the idea of combining with Sprouts Farmers Market, sources have told CNBC.
Amazon’s acquisition of Whole Foods last year provided more uncertainty regarding Albertsons’ IPO plans, as it sent grocery stocks swooning and threatened to transform the industry.
It also made the grocer and its owner rethink its strategy of growing by focusing largely on acquiring regional grocery chains.
In the months since Amazon announced its acquisition of Whole Foods, Albertsons has worked to reposition itself as a digitally focused, modern grocer. It acquired meal kit company Plated in September and has been expanding its partnership with delivery service Instacart.