Albertsons Rite Aid merger to be valued at roughly $24 billion, expected to bring in $83 billion in revenue.
In the months since Amazon acquired of Whole Foods, the trend of well-known corporations joining forces has continued. CVS Health announced late last year that it plans to acquire Aetna for about $69 billion, furthering the mega-merger movement. The most recent of which is Albertsons announcing its plans to acquire Rite Aid in a cash and stock deal. Combined, Albertsons and Rite Aid are worth $24 billion.
The race to match Amazon’s presence is clear, with the announcement of the Albertsons Rite Aid Merger already causing Walmart stock to drop by more than 10 percent, wrote Michael Corkery of the New York Times.
“It’s the battle of the old generation versus the new generation, and right now the companies that are gaining share is the new generation,” said Craig Johnson, President of Customer Growth Partners.
The Deal
The Albertsons Rite Aid merger came to be, in part, after Rite Aid’s plan to merge with Walgreens was reduced to merely selling the pharmaceutical giant 2,186 stores and related assets for $5.18 billion. The portion that is not being sold to Walgreens will now go to Albertsons.
The acquisition of Rite Aid—valued at around $2.3 billion—will turn Albertsons into a “fully integrated one-stop-shop for our customers’ food, health and wellness,” added Robert Miller, CEO of Albertsons. The newly merged company will have 4,900 stores, 4,350 pharmacy counters, and 329 clinics in 38 states with about $83 billion in annual sales, wrote Kimberly Chin of Business Insider.
After the deal is complete, Albertsons stockholders will own about 71 percent of the Albertsons Rite Aid Merger, with Rite Aid investors owning the remaining 29 percent, shared CBS News. The CEO of the combined company will be John Standley, Rite Aid Chairman and CEO, leaving Miller as the company’s chairman.
Rite Aid shareholders will also receive either one of Albertsons common stock and $1.83 in cash or 1.079 shares of Albertsons stock for every 10 shares of Rite Aid, wrote Chin.
The Albertsons Rite Aid merger “is the best way for them to compete with businesses increasingly threatened by Amazon.com Inc.,” said Miller and Standley. This is evidenced by the 30 percent increase—followed by another 1.2 percent increase—in Rite Aid shares shortly after the Albertsons Rite Aid merger was announced, wrote Lauren Hirsch of CNBC.
Additionally, much like CVS Health’s acquisition of Aetna, the Albertsons Rite Aid merger allows the grocery company to seamlessly integrate into the healthcare industry. The move not only puts Albertsons in competition with CVS, but also with Amazon who has recently made plans to team up with J.P. Morgan Chase and Berkshire Hathaway to form an independent healthcare company.
The Threat of Amazon
It’s no question that Amazon has become formidable competition in retail, but its recent acquisition of Whole Foods sealed its place in the grocery store sector. Since buying Whole Foods, the online retailer has begun offering exclusive discounts at the grocery store for Amazon Prime members.
Walmart has scrambled to catch up with Amazon. “Walmart got a late start to the internet game, and they are still suffering for it,” added Johnson. Moreover, Walmart has also begun testing a grocery delivery service with their employees.
In addition to Walmart, grocery giants like Target and Texas-based H-E-B have made respective purchases of grocery delivery service startups.
“Grocery is being hit by multiple factors,” said Gerald Storch, former CEO of Hudson’s Bay.
It makes sense that grocery giants like Albertsons are taking note of Amazon’s strategic moves and merging with powerhouse companies in order to stay competitive.
