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Will Fred???s Emerge a Winner from Walgreens-Rite Aid Merger?
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Discount retailer, Fred’s Inc. seems to have stolen the show and emerged as the big winner from the proposed merger between Rite Aid Corporation ) and Walgreens Alliance, Inc. (WBA - Free Report) . According Bloomberg report dated Mar 14, 2017, Walgreens is working on a deal to sell more stores than the previously offered 865 to Fred’s in order to clear the antitrust hurdles under the U.S. Federal Trade Commission requirements. The new proposal includes additional stores, distribution centers, software and personnel as per the media report.
This will help Fred’s acquire more pharmacy stores and help it expand pharmacy business further. The news of the new proposal has spiked the share price of Fred’s and they rallied almost 4% with investor sentiments echoing the optimism.
Flashback
In Dec 2016, Tennessee-based retailer Fred’sagreed to buy 865 stores located in the Eastern and Western U.S. along with certain assets that are required for store operations from Rite Aid and Walgreens Boots.Notably, Fred’s can forge ahead with the deal only after Rite Aid’s proposed acquisition by Walgreens materializes post the Federal Trade Commission (FTC) clearance. The deal is worth $950 million and is to be paid in cash.
The deal proved beneficial for Fred’s stock and in the last three months, shares of the company have gained 33.2%, outperforming the Zacks categorized Retail-Discount & Variety industry which witnessed a decline of 6% in the same time frame.
However, the deal got rejected by the FTC the very next month, due to anti trust issues. Rite Aid and Walgreens jointly agreed upon a Jul 31, 2017 deadline for the deal and slashed the offer price to accommodate more store divestitures that would help gain regulatory approval. Earlier, the companies had agreed to a deadline of Jan 27, 2017.
Fred’s Gain from the Takeover of the Stores
The takeover of these pharmacy stores in key market areas, will position Fred’s as the third largest drugstore chain in the U.S. The company operated 647 discount general merchandise stores and three specialty pharmacy-only locations in 15 states in the southeastern U.S. including 18 franchised locations as of Oct 29, 2016. The newly added stores will more than double the company’s store count and also boost urban presence.
The acquisition complements the company’s ongoing strategy of focusing on the pharmacy department with the specialty pharmacy sector gaining momentum of late and contributing significantly to revenues. In Apr 2015, Fred’s took over specialty pharmacy chain Reeves-Sain Drug Store in order to expand presence in the specialty pharmacy arena. Fred’s continues to open pharmacy stores across the U.S. and its specialty pharmacy business is accredited and licensed in all 50 states.
The takeover of the stores is anticipated to aid the Zacks Rank #3 (Hold) company post a turnaround. Low traffic at the brick-and-mortar stores along with soft performance of the front store categories are resulting in lower year-over-year sales in the trailing four quarters.
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Will Fred???s Emerge a Winner from Walgreens-Rite Aid Merger?
Discount retailer, Fred’s Inc. seems to have stolen the show and emerged as the big winner from the proposed merger between Rite Aid Corporation ) and Walgreens Alliance, Inc. (WBA - Free Report) . According Bloomberg report dated Mar 14, 2017, Walgreens is working on a deal to sell more stores than the previously offered 865 to Fred’s in order to clear the antitrust hurdles under the U.S. Federal Trade Commission requirements. The new proposal includes additional stores, distribution centers, software and personnel as per the media report.
This will help Fred’s acquire more pharmacy stores and help it expand pharmacy business further. The news of the new proposal has spiked the share price of Fred’s and they rallied almost 4% with investor sentiments echoing the optimism.
Flashback
In Dec 2016, Tennessee-based retailer Fred’sagreed to buy 865 stores located in the Eastern and Western U.S. along with certain assets that are required for store operations from Rite Aid and Walgreens Boots.Notably, Fred’s can forge ahead with the deal only after Rite Aid’s proposed acquisition by Walgreens materializes post the Federal Trade Commission (FTC) clearance. The deal is worth $950 million and is to be paid in cash.
The deal proved beneficial for Fred’s stock and in the last three months, shares of the company have gained 33.2%, outperforming the Zacks categorized Retail-Discount & Variety industry which witnessed a decline of 6% in the same time frame.
However, the deal got rejected by the FTC the very next month, due to anti trust issues. Rite Aid and Walgreens jointly agreed upon a Jul 31, 2017 deadline for the deal and slashed the offer price to accommodate more store divestitures that would help gain regulatory approval. Earlier, the companies had agreed to a deadline of Jan 27, 2017.
Fred’s Gain from the Takeover of the Stores
The takeover of these pharmacy stores in key market areas, will position Fred’s as the third largest drugstore chain in the U.S. The company operated 647 discount general merchandise stores and three specialty pharmacy-only locations in 15 states in the southeastern U.S. including 18 franchised locations as of Oct 29, 2016. The newly added stores will more than double the company’s store count and also boost urban presence.
The acquisition complements the company’s ongoing strategy of focusing on the pharmacy department with the specialty pharmacy sector gaining momentum of late and contributing significantly to revenues. In Apr 2015, Fred’s took over specialty pharmacy chain Reeves-Sain Drug Store in order to expand presence in the specialty pharmacy arena. Fred’s continues to open pharmacy stores across the U.S. and its specialty pharmacy business is accredited and licensed in all 50 states.
The takeover of the stores is anticipated to aid the Zacks Rank #3 (Hold) company post a turnaround. Low traffic at the brick-and-mortar stores along with soft performance of the front store categories are resulting in lower year-over-year sales in the trailing four quarters.
Stock Pick
A better-ranked stock in the same sector is Burlington Stores Inc. (BURL - Free Report) . Burlington Stores carries a Zacks Rank #2 (Buy) and has an expected earnings growth rate of 19.9%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Will You Make a Fortune on the Shift to Electric Cars?
Here's another stock idea to consider. Much like petroleum 150 years ago, lithium power may soon shake the world, creating millionaires and reshaping geo-politics. Soon electric vehicles (EVs) may be cheaper than gas guzzlers. Some are already reaching 265 miles on a single charge.
With battery prices plummeting and charging stations set to multiply, one company stands out as the #1 stock to buy according to Zacks research.
It's not the one you think.
See This Ticker Free >>