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Grocery chain Albertsons to acquire Rite Aid

Tuesday, February 20, 2018  
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  • Grocery chain Albertsons plans to acquire the remainder of Rite Aid that isn't being sold to Walgreens Boots Alliance.
  • Rite Aid Chairman and CEO John Standley would become CEO of the combined company, and Albertsons Chairman and CEO Bob Miller will be chairman of the new company.
Matthew Staver | Bloomberg | Getty Images
A woman pushes a cart of groceries to her car outside an Albertson's store in Denver, Colorado.
 

Grocery chain Albertsons announced plans Tuesday to acquire Rite Aid, as the traditional grocery industry continues to look for growth by broadening offerings, not just store base.

A combined Albertsons and Rite Aid would have a value of roughly $24 billion, including debt. The two will have about 4,900 locations, 4,350 pharmacy counters and 320 clinics across 38 states and the District of Columbia.

Most Albertsons' pharmacies will be rebranded as Rite Aid, and the company will continue to operate Rite Aid's stand-alone stores.

Shares of Rite Aid was up 11 percent in premarket trading after skyrocketing as much as 30 percent before the opening bell.

This deal follows Rite Aid's failed attempt in 2015 to sell to its 4,600 stores to Walgreens. That deal was whittled down by regulators to a purchase of 1,932 stores for $4.37 billion.

The deal with Albertsons underlines the change in course that retailers are taking, no longer looking to expand only by real estate footprint, but also by capability. Increasingly, retailers are looking to pharmacies for this expansion, which can take advantage of the frequency with which people buy prescription drugs. There is also the opportunity to use store footprints as a base for drug delivery and pick up.

CVS Health late last year announcedits intent to acquire Aetna for roughly $69 billion. Walgreens is now said to be in early-stage talks to acquire drug wholesale company AmerisourceBergen, The Wall Street Journal has reported.

New Strategy

 

For Albertsons, the deal is yet another transformative purchase put together by its private equity parent Cerberus Capital Management. Cerberus and a consortium of investors helped to form Albertsons in 2006. It then later merged with the grocer Safeway in 2015.

Cerberus tried to take Albertsons public soon after its Safeway deal, filing for an IPO that year. It had hoped the IPO would value it at roughly $24 billion, as it pointed investors to Kroger's then strong stock performance and the opportunity it had to further buy up regional grocers.

It pulled its IPO plans at the last minute though. The week Albertsons was supposed to price its IPO, Walmart lowered its earnings forecast, dragging its stock valuation and those of its peers lower. Companies going public look to competitors as reference points for their own valuations.

Albertsons' IPO remained shelved for months, waiting for Kroger's stock to rebound. Amazon's acquisition of Whole Foods last year provided more uncertainty regarding Albertsons' IPO plans, as it sent grocery stocks swooning.

It also made the grocer and its owner rethink its strategy of growing by focusing largely on acquiring regional grocery chains.

In the months since Amazon announced its acquisition of Whole Foods, Albertsons has worked to reposition itself as a digitally focused, modern grocer. It acquired meal kit company Plated in September and has been expanding its partnership with delivery service Instacart.

Amazon also is expected to exert pressure on the health-care space, having recently announced plans to team with Berkshire Hathaway and J.P. Morgan to craft a start-up to lower employee health costs.


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