GOING PUBLIC: ALBERTSONS PARTAKES IN RITE AID ROUND UP
A majority of Albertsons Companies pharmacies will be rebranded as Rite Aid and the company will continue to operate Rite Aid stand-alone pharmacies.
During the tail end of the Walgreens and Rite Aid debacle, privately held Albertsons Companies intends to grab up the remaining 2,500 Rite Aid locations not being sold to Walgreens Boots Alliance. The grocery chain, comprised of Safeway and 19 additional supermarket chains, has agreed to merge with publicly traded Rite Aid as a combined entity. In a joint press release announced in February 2018, the integrated company will operate approximately 4,900 locations, 4,350 pharmacy counters, and 320 clinics across 38 states, serving over 40 million customers per week.
The merger, expected to close early in the second half of 2018, enables Albertsons Companies to go public after being controlled by private equity giant, Cerberus Capital Management. Albertsons Companies’ executives report that the deal would create a company with expected 2018 revenue of $83 billion and potential annual earnings of $3.7 billion before interest, taxes, depreciation and amortization. The transaction has been approved unanimously by the boards of directors of both companies but is still subject to the approval of regulatory approvals and other customary closing conditions.
Possible Impact for Investors Rite Aid owners should be excited about the potential created by the Albertson-Rite Aid merger. While Rite Aid has fallen significantly behind main competitors, Albertsons sees the advantages of driving pharmacy customers into their stores. Albertsons noted on their quarterly investor call, that pharmacy customers are among the most valuable in the grocery business, spending more than twice as much on groceries per week as the average customer and more than three times overall. Rite Aid’s well-known brand and pharmacy expertise should help Albertsons attract new customers to its in-grocery pharmacies. The possible merger will have a particularly strong presence on the West Coast and Albertsons may help revive Rite Aid’s “front-of-store” retail business in its remaining stand-alone pharmacies with a more-compelling grocery option. The deal with Albertsons underlines the change in course that retailers are taking, as they are no longer looking to expand their physical footprint alone, but also their capabilities. There is also the opportunity to use store footprints as a base for drug delivery and pick up, combating against the e-commerce and Amazon threat.
There has been significant concern regarding what would happen to the leftover Rite Aid locations not included in the Walgreens merger. Fortunately, Albertsons’ acquisition of Rite Aid will save some of the remaining Rite Aid stores. Under the Albertsons’ brand, if the deal closes, Rite Aid owners will once again own real estate with a publicly traded tenant. 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 the delivery service, Instacart. These developments are significant for landlords as it keeps the chain in competition with increasingly powerhouse rivals, CVS and Walgreens. Until the merger has been approved, it appears all new development for Rite Aid has been put on hold. Currently, it is hard to say when these projects will pick up again. The industry may have to wait until after the merger to reassess the situation.