Albertsons will buy Rite Aid, part of a strategy to counter Amazon

Albertsons will buy Rite Aid, part of a strategy to counter Amazon

Grocery store chain Albertsons announced Tuesday that it will purchase the remainder of independent Rite Aid stores, with the supermarket chain rebranding its own pharmacies as Rite Aid.

Camp Hill, Pa. -based Rite Aid is a leading drugstore chains that now operates more than 4,500 stores in 31 states and Washington, D.C.

Within three years the combined company is expected to deliver annual run-rate cost savings of $375 million, with more than 60 percent within the first two years, the companies said.

Rite Aid CEO John Standley will serve as chief executive of the new company; his counterpart at Albertsons, Bob Miller, will be chairman. Her Majesty the Queen in Right of the Province of Alberta as represented by Alberta Investment Management Corp lifted its holdings in shares of Rite Aid by 21.4% during the 4th quarter. Once the deal closes, shares of Albertsons will be trading on the New York Stock Exchange.

Walgreens wanted to buy up all of Rite Aid in 2015, but federal regulators nixed that agreement on antitrust grounds.

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Walgreens attempted to buy the chain a year ago, but the full merger was blocked because of antitrust concerns.

"At this time, we don't have a list of Rite Aid stores in Maryland or the number of locations that are planned to transfer ownership to Walgreens", said Jim Cohn, a Walgreen Co. spokesman, on Tuesday. Deutsche Bank began coverage on shares of Rite Aid in a report on Monday, December 4th.

Signs posted outside the Pepperell store say the pharmacy is now a Walgreens.

Rite Aid shareholders can elect to get either one Albertsons common share plus about $1.83 in cash, or 1.079 Albertsons common shares for every 10 shares they hold. Most Albertsons company pharmacies will be rebranded with the Rite Aid name. Assuming the Rite Aid - Albertsons deal goes through, the company may achieve the synergies and savings it forecasts, but will still be a many-faceted - and in my view, unwieldy - wholesaler, food retailer, and pharmacist.

A deal value was not disclosed in a statement released Tuesday by the companies.

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The deal follows Amazon.com Inc's AMZN.O move to team up with Berkshire Hathaway Inc BRKa.N and JPMorgan Chase & Co JPM.N to form a not-for-profit company to provide health care for their employees, challenging the existing USA healthcare system. The online giant bought the grocer Whole Foods last year and plans to roll out a two-hour delivery service this year to customers who pay for its $99-a-year Prime membership. That deal could turn numerous chain's 9,800 stores into one-stop-shop locations for an array of health care needs like blood work and eye or hearing care in addition to their traditional role of filling prescriptions. Walgreens agreed to buy almost 2,000 Rite Aid locations and some distribution centers for about $4.38 billion.

Rite Aid was not doing especially well before the deal. CVS and Walgreens struggled on that front too, but at least their pharmacy businesses are thriving.

Immediately following the merger's completion, if all Rite Aid shareholders elect to receive shares plus cash, Albertsons Cos. will have approximately 392.9 million shares outstanding on a pro forma and fully diluted basis.

"Supervalue - Albertsons is a wholesaler and a retailer using multiple retail banners with several opposing market positions from "value" to 'premium, ' including Safeway", Jacobowitz continues.

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