Rite Aid Corporation (RAD) shares touched the highest level in nearly a month Tuesday after the drugstore chain said it had reached a merger agreement with Albertsons Cos. (ABS) in a deal the pair estimate could generate $83 billion in revenue.
Rite Aid shareholders will have the right to exchange 10 shares for 1 Albertsons share, as well as $1.83 in cash, or 1.079 Albertsons share, the companies said in a joint statement. Albertsons would own around 72% of the combined group, the companies said, but will be run by current Rite Aid Chairman and CEO John Standley. The group will have 4,900 stores, 4,350 pharmacy counters and 320 clinics across 38 states, the companies said, with one-year pro-forma adjusted earnings of $3.7 billion.
"This powerful combination enables us to become a truly differentiated leader in delivering value, choice, and flexibility to meet customers' evolving food, health, and wellness needs," said Standley. "The combined platform positions Rite Aid to capitalize on our pharmacy expertise and expand and enhance our pharmacy footprint. We are confident that delivering improved customer experiences and value will drive growth and profitability while creating compelling long-term value for shareholders."
Rite Aid shares gained 7.5% at the start of trading in New York, but closed up 3.2% to $2.20.
Walgreens won regulatory approval from the U.S. Federal Trade Commission for its long-sought attempt to buy Rite Aid last fall after agreeing to to purchase 1,932 stores and three distribution centers from Rite Aid and related inventory for $4.38 billion in cash and other considerations. The remaining stores, the WSJ said, as well as a benefits management company would be sold to Albertsons in a deal that would give the combined companies an enterprise value of $24 billion.
A combined Alberstons/Rite Aid would mark another significant change in the U.S. retail landscape, which was upended last summer by Amazon Inc.'s (AMZN) $13.7 billion purchase of Whole Foods Markets (WFM) . If the deal is ultimately completed, Alberstons would get deeper access into the pharmacy sales segment while Rite Aid would be able to ramp-up its online offering and challenge both Walgreens Boots and CVS Health Corp. (CVS)