NEW YORK (TheStreet) -- Shares of Rite Aid Corp. (RAD - Get Report) are up 4.95% to $7.96 in pre-market trade after the retail drugstore chain and Envision Pharmaceutical Services ("EnvisionRx") today announced that they have entered into a definitive agreement under which Rite Aid will acquire EnvisionRx, a portfolio company of leading global private investment firm TPG, in a transaction valued at approximately $2 billion, which includes the value of an expected future tax benefit of $275 million.
Under the terms of the agreement, which has been unanimously approved by the boards of both companies, Rite Aid will pay approximately $1.8 billion in cash and $200 million in Rite Aid stock, or approximately 27.9 million shares.
EnvisionRx is a national, full-service pharmacy benefit management (PBM) company with projected 2015 calendar year revenues of approximately $5 billion and projected 2015 calendar year EBITDA in a range of $150 to $160 million. The company provides both transparent and traditional PBM options through its EnvisionRx and MedTrak PBMs, respectively, as well as pharmacy-related services to clients across the nation.
Exclusive Report: Jim Cramer's Best Stocks for 2015
EnvisionRx also offers fully integrated mail-order and specialty pharmacy services through Orchard Pharmaceutical Services; access to the nation's largest cash pay infertility discount drug program via Design Rx; an innovative claims adjudication software platform in Laker Software; and a national Medicare Part D prescription drug plan through Envision Insurance Company's EnvisionRx Plus product offering.
"The acquisition of EnvisionRx meaningfully expands our health and wellness offerings, enhancing our ability to provide a higher level of care to the patients and communities we serve," said Rite Aid Chairman and CEO John Standley. "With the addition of EnvisionRx, we will create a compelling pharmacy offering across retail, specialty and mail-order channels, enabling us to deliver cost-effective solutions to employers and health plans while driving growth and creating long-term value for our shareholders."
The transaction is expected to be accretive to Rite Aid's earnings per share in the first full year following the closing of the transaction. The transaction is expected to close by September.
Following the closing, EnvisionRx will operate as a wholly owned subsidiary of Rite Aid led by Frank Sheehy and current management. EnvisionRx's headquarters will remain in Twinsburg, OH.
Separately, TheStreet Ratings team rates RITE AID CORP as a Hold with a ratings score of C. TheStreet Ratings Team has this to say about their recommendation:
"We rate RITE AID CORP (RAD) a HOLD. The primary factors that have impacted our rating are mixed some indicating strength, some showing weaknesses, with little evidence to justify the expectation of either a positive or negative performance for this stock relative to most other stocks. The company's strengths can be seen in multiple areas, such as its revenue growth, solid stock price performance and growth in earnings per share. However, as a counter to these strengths, we also find weaknesses including weak operating cash flow and poor profit margins."
Highlights from the analysis by TheStreet Ratings Team goes as follows:
- RAD's revenue growth has slightly outpaced the industry average of 1.0%. Since the same quarter one year prior, revenues slightly increased by 5.3%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share.
- Powered by its strong earnings growth of 150.00% and other important driving factors, this stock has surged by 34.86% over the past year, outperforming the rise in the S&P 500 Index during the same period. Regarding the stock's future course, our hold rating indicates that we do not recommend additional investment in this stock despite its gains in the past year.
- The gross profit margin for RITE AID CORP is currently lower than what is desirable, coming in at 30.30%. Regardless of RAD's low profit margin, it has managed to increase from the same period last year. Despite the mixed results of the gross profit margin, the net profit margin of 1.56% trails the industry average.
- Net operating cash flow has significantly decreased to $111.73 million or 54.21% when compared to the same quarter last year. In addition, when comparing to the industry average, the firm's growth rate is much lower.
- You can view the full analysis from the report here: RAD Ratings Report