Albertsons Cos., parent company of supermarkets Albertsons, Safeway, Jewel-Osco and Acme, has reached a definitive merger agreement with Rite Aid to create a combined company that could generate as much as $83 billion in 2018 revenue.
The merger would bring privately-backed Albertsons onto the New York Stock Exchange, finally taking the company public more than two years after filing an S-1 with the SEC.
“Albertsons has been contemplating going public for over two years and this cash-and-stock deal will finally allow Albertsons to do so after more than a decade of ownership by private equity firm Cerberus Capital,” said Mickey Chadha, VP of Moody’s in commentary for Retail TouchPoints. “However, drug retailing has had its own challenges, with reimbursement pressure and weak front-end sales as evidenced in Rite Aid’s weak profits over the last couple of years. Competing with much larger and more diversified drug retailers like CVS and Walgreens will be a formidable challenge."
Deal Highlights New Modes Of Retail Expansion
The Albertsons-Rite Aid deal underlines that retail expansion is no longer defined just by adding more stores, but also by incorporating new functionalities. Retailers are looking to pharmacies to take advantage of the frequency with which people buy OTC and prescription drugs. These combinations also create opportunities to use physical stores as a base for prescription drug delivery and pickup.
Retail pharmacy also has seen its fair share of changes over the past few months, with CVS Health acquiring health care insurer Aetna for $69 billion and Rite Aid already selling off 1,900+ pharmacies to Walgreens for $4.4 billion. In the case of CVS, the pharmacy seeks to deliver more transparency to the relationship between pharmacy benefit managers (PBMs) and drug manufacturers, providing cheaper prices and improved shopper experiences. Even Amazon has made a move to shake up the health care industry, partnering with Berkshire Hathaway and JPMorgan Chase to create an independent health care company for employees.
Upon the deal’s closing, Albertsons-Rite Aid will have approximately 4,900 locations (with 4,300 of them including pharmacy counters). The combined company is expected to generate 2018 revenues of $83 billion and adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) of $3.7 billion. Additionally, the company expects to deliver annual run-rate cost synergies of $375 million in approximately three years.
Rite Aid Chairman and CEO John Standley would become CEO of the combined company, and Albertsons Chairman and CEO Bob Miller will be Chairman. The Board of Directors will be comprised of nine directors, four of whom will be named by Albertsons (including Miller and Lenard Tessler, Vice Chairman and Senior Managing Director at Cerberus), four of whom will be named by Rite Aid (including Standley) and one of whom will be a jointly selected director.
The combined company is expected to include leadership from both companies and maintain dual headquarters, in Boise, Idaho, and Camp Hill, Pa. The name of the combined company will be determined by transaction’s close, according to a company statement.