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Rite Aid-Albertsons Deal: US SEC Sanctions Proxy Materials

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Rite Aid Corporation (RAD - Free Report) is progressing well toward the completion of its pending merger with the grocer, Albertsons Companies, Inc. The progress of the deal became evident, after the U.S. Securities and Exchange Commission (“SEC”) made the previously filed registration statement on Form S-4 effective.

Following this, Rite Aid is now urging its shareholders to vote in favor of the merger deal. Voting, regarding the proposed transaction, will be carried out in the Special Meeting of Rite Aid shareholders, which is scheduled for Aug 9, 2018. Rite Aid’s shareholders, with record as of Jun 22, 2018, are entitled to cast votes in connection with the proposed deal.

Though Rite Aid’s shares haven’t witnessed much positive momentum lately, we believe that the deal, after the completion, can begin a new chapter to its story. Shares of Rite Aid have declined nearly 6.9% on Jun 26. However, this Zacks Rank #3 (Hold) stock has surged 17.4% in the last three months, driven by optimism stemming from the completion of store sales to Walgreens (WBA - Free Report) and the aforementioned merger developments. The company has outperformed the industry’s increase of 6.9%.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The Background

Rite Aid had agreed to merge with the largest grocer in the country, Albertsons, on Feb 18, 2018. The merger will not only help revive the distressed business of Rite Aid but also help in dispelling the fear of competition from Amazon (AMZN - Free Report) . Per the deal, Rite Aid’s shareholders have the choice to opt for Albertsons’ shares and cash, or only its shares.

For every 10 Rite Aid shares, shareholders can get one Albertsons share and $1.83 in cash, or only 1.079 Albertsons shares. This will leave shareholders of Rite Aid with about 28-29.6% stake in the combined company, subject to the outcome of cash elections. Meanwhile, Albertsons’ shareholders will own a 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.

The new company will operate about 4,900 locations, including 4,350 pharmacy counters and 320 clinics across 38 states and Washington D.C. It will serve more than 40 million customers per week. The companies’ plan to re-banner most of Albertsons’ pharmacies to Rite Aid Stores, following the completion of the transaction while Rite Aid will continue to operate its stand-alone pharmacies.

The merger is approved by the boards of directors of both companies. Further, it is expected to be closed by the second half of calendar 2018, conditioned upon the receipt of approval from Rite Aid’s shareholders, and other regulatory and customary closing conditions.

The drugstore industry, in general, has been witnessing increased consolidation lately. After the failed merger between Walgreens and Rite Aid, the industry has seen CVS Health Corp. (CVS - Free Report) enter a $69-billion deal to acquire Aetna, Inc. (AET - Free Report) in January 2018. While the CVS-Aetna deal is on track, Walgreens’ bid to buy AmerisourceBergen Corp. (ABC - Free Report) seems to have cooled off in the early stages.

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