Albertson Cos. and Rite Aid Corp. announced a definitive merger agreement today that will unite the companies into a new publicly traded entity with $83 billion in annual sales that will be the number-one integrated food and drug retailer on the West Coast, and a major player in the mid-Atlantic and Northeast.
Under the deal, Albertsons’ private label food products, including O Organics and Lucerne, will find a home in Rite Aid stores, while most Albertsons in-store and stand-alone pharmacies will be rebranded as Rite Aid. The merged company will have an expanded footprint and be ranked first or second in 66% of the top metropolitan areas in the U.S., and be ranked first or second in 70% of pharmacy locations.
The integrated company will operate approximately 4,900 locations, 4,350 pharmacy counters and 320 clinics across 38 states and Washington, D.C., and service more than 40 million customers per week.
The name of the new company has not yet been determined, but it will maintain dual headquarters in Boise, Idaho, where Albertsons is currently headquartered, as well as Camp Hill, Pa., which is Rite Aid’s home base. Publicly held Rite Aid is traded on the New York Stock Exchange, while Albertsons is privately held.
“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,” Rite Aid chairman and CEO John Standley said in a statement. “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 our shareholders.”
Standley will become the CEO of the combined company, while Bob Miller, chairman and CEO of Albertsons Cos., will serve as chairman. The combined company is expected to be comprised of leadership from both retailers.
“The hallmark of Albertsons Companies’ business has been to become the favorite local supermarket of our customers,” Miller said in a statement. “We have always put our customers first, and our combination with Rite Aid will enable us to even better serve the valuable pharmacy customer by providing a fully integrated one-stop-shop for our customers’ food, health and wellness needs. I have long known the excellent management team at Rite Aid, and we share a singular focus on superior customer service and a clear vision and strategy to become the favorite local supermarket and pharmacy to shoppers in every neighborhood we serve.”
Both chains currently operate stores in close proximity to each other in some markets, such as New Jersey, but It is too soon to determine if any overlapping stores may be closed, company officials said.
“It is premature to speculate and we can’t preempt the decisions of the FTC,” Andrew Whelan, director of communications at Albertsons Cos., told Supermarket News. “We’ve reviewed the transaction carefully and we look forward to working with the FTC throughout the review process.”
Most Albertsons in-store pharmacies will be rebranded as Rite Aid. “The exception will be the Osco stores in Chicago because there is no overlap there,” Whelan said.
Burt P. Flickinger, III, managing director at New York-based Strategic Research Institute, sees that as an astute move.
“Osco is such as strong name in Chicago. Osco is to chain drug in Chicago what Marshall Field’s was to department stores in Chicago,” he said, referencing the horrific sales slide Macy’s saw when it did away with the Marshall Field’s nameplate in the Midwest.
“To their credit, Rite Aid is the number-one seller of many key consumable categories on a per-store basis, including beer, carbonated beverages, salty snacks and cookies and crackers,” Flickinger said. “They will get Albertsons distribution power and they both have good distribution centers. It is a strategic triumph for Albertsons, and whereas Kroger is selling off assets like convenience stores, Albertsons is profitably growing and making strategic acquisitions, like buying gourmet supermarket Andronico’s in San Francisco from out of bankruptcy, and Paul’s Supermarkets in Idaho to get their great bakery and prepared foods recipes.”
Rite Aid is also a participant in the Plenti Points Rewards program, along with Exxon, Mobil, Southeastern Grocers, Macy’s and other retailers.
“Plenti Points has been very successful for us, and following the completion of the merger we will be working to bring both of our loyalty programs together and leverage the capabilities of the audiences of both,” Ashley Flower, senior manager, public relations at Rite Aid, told Supermarket News.
Under the terms of the deal, in exchange for every 10 shares of Rite Aid common stock, Rite Aid shareholders will have the right to elect to receive either one share of Albertsons Companies stock plus approximately $1.83 in cash, or 1.079 shares of Albertsons Companies stock.
Depending on the results of that election, Rite Aid shareholders will own a 28% to 29.6% stake in the combined company.
Albertsons is being backed by an investment consortium led by Cerberus Capital Management, L.P., which also includes Kimco Realty Corporation, Klaff Realty, LP, Lubert-Adler Partners LP and Schottenstein Stores Corporation.
“The Rite Aid deal is a great tribute to Bob Miller and his leadership,” Flickinger said. “They are getting Rite Aid at about $2 per share, that’s about an 88% discount on the price of the stock versus where it was when Walgreens was trying to buy all of Rite Aid.”
Walgreens and Rite Aid had planned to merge last year, but called off the deal when they encountered FTC resistance. In September, Walgreens then agreed to acquire nearly 2,000 Rite Aid stores – about half of the company – and select distribution centers for $4.38 billion.
Flickinger called Miller “the best turn-around CEO in all sectors of retail for the last four years” and expects he will make Albertsons and Rite Aid “the number one food and drug combo store chain in the country.”
Some companies, most notably department-store operator Bon Ton Stores — which filed for bankruptcy protection earlier this month — have not had success with dual headquarters, but Flickinger expects Albertsons/Rite Aid to be an exception. “Rite Aid has so many veteran upper and mid-level executives who are buyers and merchandisers who are very talented who don’t want to move from Pennsylvania to Boise or Pleasanton, Calif., where Safeway corporate was headquartered. With the dual headquarters, Albertsons keeps the best and brightest at Rite Aid, rather than risking losing them to someone like Walmart,” he said.
The deal is expected to be completed sometime during the second half of the calendar year.