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Rite Aid Nears Completion of Assets Transfer to Walgreens

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Rite Aid Corporation is progressing well with the transfer of stores and related assets to Walgreens Boots Alliance Inc. (WBA - Free Report) , under its amended and restated asset purchase agreement. As of Mar 2, 2018, the company has transferred a total of 1,651 stores and related assets to Walgreens.

Rite Aid received net sale proceeds of $3.6 billion in cash owing to the transfer of 1,651 stores. With these cash proceeds, management has been lowering debt, thus solidifying its liquidity position. Further, the company expects to complete the transfer process by spring 2018.

Per the agreement, Walgreens will buy 1,932 Rite Aid stores, three distribution centers and related inventory in an all-cash deal of $4.4 billion. The company is carrying out the transfer of assets in a phased manner.

Notably, the majority of the closing conditions for the deal have been met and only few conditions need to be satisfied for the remaining transfer of stores. Moving ahead, Rite Aid expects to smoothly complete the transfer process.

Earlier, management had stated that following the closure of the deal with Walgreens more than 70% of Rite Aid’s network will include wellness and customer world outlets. These outlets combined with the ongoing development of the company’s wellness stores form a major part of Rite Aid’s short-term and long-term strategic plans.

Simultaneously, the company remains focused on identifying new opportunities to strengthen business and provide a great experience to customers and patients, which should also enhance shareholder value.

In a recent development, Rite Aid agreed to merge forces with the country’s largest grocer Albertsons Companies. Per the deal, Rite Aid shareholders have the choice to opt for Albertsons’ shares and cash or only the company’s shares. For every 10 Rite Aid shares, shareholders can get one Albertsons share and $1.83 in cash or 1.079 Albertsons shares. Consequently, Rite Aid shareholders will own about 28-29.6% stake in the combined company, subject to the outcome of the cash elections. Meanwhile, Albertsons’ shareholders will own nearly 70.4-72% stake in the combined company.

The combined company is expected to generate annual revenues of about $83 billion. Further, the new entity anticipates delivering annual run-rate cost savings of $375 million in the next three years. Of these, the companies expect to realize nearly 60% of the cost synergies in the first two years after closing the transaction. Additionally, the companies anticipate identifying about $3.6 billion of potential revenue opportunities.

In fact, this deal is considered as Albertsons’ and Rite Aid’s latest effort to dispel the fear of competition from Amazon (AMZN - Free Report) .


 

These positives have brought about a significant turnaround in Rite Aid’s stock price. In the last three months, this Zacks Rank #3 (Hold) company has gained 8.9% against the industry’s decline of 0.1%.

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