Boise, Idaho-based Albertsons, which operates stores across 35 states and the District of Columbia under 19 banners including Safeway and Vons, is close to acquiring the roughly 2,000 Rite Aid stores that are not being acquired by Walgreens Boots Alliance, the Wall Street Journal reports this morning. A yet-to-be-named new company created by the merger will then operate about 4,900 stores and 4,300 pharmacies and generate $83 billion in annual sales.
“The chief executives of the companies said in interviews Monday that the merger is the best way for them to compete in businesses increasingly threatened by Amazon.com Inc., along with an emboldened Walmart,” writes the WSJ’s Heather Haddon in breaking the story. “Amazon is making a big push into food retail with its purchase of Whole Foods Market Inc. Walmart, in turn, has boosted its e-commerce offerings and the range of goods it sells, through a number of recent deals.”
“We know that scale matters,” Bob Miller, Albertsons chief executive tells Haddon. “We continue to grow to compete with all competitors, not just Amazon.”
“John Standley, Rite Aid’s CEO, said the merger will help the company expand its food offerings to stand out from CVS Health Corp., Walgreens and Walmart. It will also expand Rite Aid’s e-commerce offerings given Albertsons’ progress in that realm, said Mr. Standley,” asserting “there is a ton of potential here,” Haddon continues.
Nearly two decades younger than Miller, Haddon would be CEO of the combined company. Miller will serve as chairman.
When its deal with Walgreens was initially announced, Rite Aid figured it would have to sell about 500 stores to get regulatory approval, but that proved to be overly optimistic, as we reported last June. This deal will also need approval but, at least initially, the alarm bells have not sounded.
“Rite Aid, which sells prescription drugs, has been struggling with eroding profits in its pharmacy business as increases in branded drug prices have slowed while reimbursement pressures for generics has intensified,” points out Reuters’ Shalini Nagarajan. Rite Aid has regulatory approval to sell 1,932 stories to Walgreens Boots Alliance Inc. for $4.38 billion. Under the deal, Rite Aid has the option of joining Walgreens’ group purchasing agreement to negotiate discounts on generic drug prices.”
“Rite Aid has been looking to grow its food business and make a bigger push into e-commerce. A tie-up with Albertsons, which owns Safeway, Shaw’s, and other chains, would give the convenience store operator the opportunity to do so. Its peers, CVS Health and Walgreens, have pursued deals of their own of late, each looking to acquire businesses in the health-care industry,” writes Lauren Thomas for CNBC.com.
“Rival grocery chain Kroger had been looking for suitors to buy its 800 convenience stores and recently announced that British gas station operator EG Group would acquire those assets for a little more than $2 billion. Kroger, in turn, plans to focus on its grocery operations,” Thomas continues.
Shareholders of Albertsons will hold roughly 71% of the company; Rite Aid investors will own the rest. In response to the WSJ report, “Rite Aid rose 23% before U.S. markets opened on Tuesday,” Bloomberg’s Katerina Petroff reports. “Albertsons, which is backed by private equity firm Cerberus Capital Management LP, last year put plans for an initial public offering on hold after Amazon acquired Whole Foods Market Inc., according to people familiar with the situation.”
The combined company will be based in Camp Hill, Pa., and Boise where, “in 1939, Joe Albertson, a former Safeway district manager, took $5,000 he saved and $7,500 he borrowed from his wife’s Aunt Bertie, and partnered with L.S. Skaggs to open his first Albertsons store on 16th and State Streets,” according to the history on the company’s website.
Rite Aid’s first store opened as the Thrift D Discount Center in Scranton, Pa. in 1962 and after “grow[ing] rapidly through acquisitions and the opening of new stores [and] expanding to five northeastern states, it became Rite Aid Corp. in 1968. It also made its first public offering and start trading on the American Stock Exchange that year, according to its online history.
Whatever it’s called in the future, it best develop a robust plan to expand online.