BOISE, ID and CAMP HILL, PA—In a defensive play that's said to build on the complementary strengths of two formats, grocery giant Albertsons Cos. will merge with Rite Aid Corp. Financial terms were not disclosed, although the Wall Street Journal reported a combined market value of about $24 billion including debt. The deal will entail Albertsons, which was taken private by an investment group led by Cerberus Capital Management in 2013, going public once again following its merger with Rite Aid, which trades on the New York Stock Exchange under the RAD ticker.
The pharmacy chain that Albertsons is acquiring will run to more than 2,500 stores, or a little over half the size of the Rite Aid operation with which Walgreens Boots Alliance sought to merge. However, the Justice Department shot down the proposed Walgreens/Rite Aid merger last year on antitrust grounds.
Instead, the two companies announced this past June that Walgreens would buy about 2,200 Rite Aid locations, a deal later scaled down to 1,932 stores and three distribution centers trading for a total of $4.4 billion. More recently, the WSJ reported that Walgreens was in talks to acquire the 74% of drug wholesaler AmerisourceBergen that it doesn't already own.
Bob Miller, chairman and CEO of Albertsons, says the combination with Rite Aid will enable the company to provide “a fully integrated one-stop-shop for our customers' food, health and wellness needs.” Post-merger, Miller will become chairman of the new entity, while his counterpart at Rite Aid, John Standley, will serve as CEO. It will operate from dual headquarters in Boise, ID and Camp Hill, PA, the respective hometowns of Albertsons and Rite Aid.
The combined grocery/pharmacy chain, which hasn't gotten a name yet, will operate about 4,900 locations nationwide, with pro forma 2018 revenues of $83 billion. Most of Albertsons' in-store pharmacies will be rebranded as Rite Aid, and the company will continue to operate standalone Rite Aid pharmacies.
News of the proposed Albertsons/Rite Aid merger comes on the heels of two pending consolidations that have the potential to reshape the healthcare delivery conversation. Last month, Amazon announced that it would team up with Berkshire Hathaway and JP Morgan to form a private healthcare company for the employees of all three corporations. In December, CVS—Rite Aid's biggest competitor—said it would buy health insurer Aetna in a deal valued at $69 billion, plus the assumption of $8 billion in debt.
Credit Suisse and Goldman Sachs served as lead financial advisors to Albertsons, while Schulte Roth & Zabel LLP acted as legal advisor. Bank of America Merrill Lynch also served as financial advisor to Albertsons, and has agreed to provide financing for the proposed transaction together with Credit Suisse and Goldman Sachs. For Rite Aid, Citi served as exclusive financial advisor; Skadden, Arps, Slate, Meagher and Flom LLP acted as legal advisor. The deal is expected to close in the third quarter.
While the Cerberus-led investment group that owns Albertsons is comprised primarily of private companies, there is one publicly traded investor in the mix: shopping center REIT Kimco Realty Corp., which holds a 9.74% stake in the grocery operator. When the merger between Albertsons and Rite Aid is finalized, “we will have a clear indication of the resulting market value of our stake,” says Kimco CEO Conor Flynn, “Beyond the strong returns we have already generated, we will have greater flexibility and liquidity with our investment via the public markets.”
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Paul Bubny
Paul Bubny is managing editor of Real Estate Forum and GlobeSt.com. He has been reporting on business since 1988 and on commercial real estate since 2007. He is based at ALM Real Estate Media Group's offices in New York City.
