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Albertsons Buying Rite Aid in Latest Deal Remaking U.S. Retail and Healthcare Industries

Integrated Platform Will Create a Publicly Traded Grocery/Pharmacy Chain of 4,900 Locations
February 20, 2018
Albertsons Cos., one of the nation's largest grocery retailers, and drugstore chain Rite Aid Corp. (NYSE:RAD) announced a definitive merger agreement under which privately held Albertsons will acquire publicly traded Rite Aid.

The combined companies will operate about 4,900 stores, including 4,350 pharmacy locations across 38 states, with Albertsons pharmacies being converted to Rite Aid.

The deal follows Rite-Aid's partially failed full merger with Walgreens Boots Alliance Inc. (NASDAQ: WBA). The deal ended up being pared down last September after failing to secure regulatory approval with Rite-Aid eventually agreeing to sell 1,932 locations to Walgreens. Those sales are expected to be completed this spring.

The new proposal will leverage expanded Albertsons West Coast grocery presence with Rite-Aid's Northeast pharmacy presence. The merged firms will be able to offer a full suite of health and wellness capabilities, including specialty pharmacy offerings and in-store RediClinics in larger Albertsons stores and stand-alone Rite Aid stores.

Under the terms of the agreement, Rite Aid shareholders will have the right to elect to receive either stock or a combination of stock and cash. Depending on the results of cash elections, shareholders of Rite Aid will own a 28% to 29.6% stake in the combined company, and current Albertsons shareholders will own the remainder.

Albertsons is backed by an investment consortium led by Cerberus Capital Management, which also includes Kimco Realty Corp. (NYSE: KIM), Klaff Realty LP, Lubert-Adler Partners, and Schottenstein Stores Corp.

Current Rite Aid chairman and CEO John Standley will become CEO of the combined company, with current Albertsons chairman and CEO Bob Miller serving as chairman.

The name of the combined company will be determined by transaction close but will continue to have headquarters in both Boise, ID, and Camp Hill, PA.

"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," Standley said. "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."

The combined business is expected to generate revenues of approximately $83 billion in its first year of operation. The combined company expects to deliver annual cost synergies of $375 million in approximately three years, with a majority of the cost savings expected to be realized within the first two years post-close.

The transaction has been approved unanimously by the boards of directors of both companies. The merger is expected to close early in the second half of this year, subject to the approval of Rite Aid's shareholders, regulatory approvals, and other customary closing conditions.

The Albertsons-Rite Aid tie-up continues a wave of consolidation sweeping through the retail and healthcare industries. Last year, CVS Health and Aetna agreed to combine in a $68 billion deal, while recent media reports have said that Walgreens Boots Alliance has held preliminary discussions with pharmaceutical firm AmerisourceBergen.

The Cerberus consortium acquired Albertsons as part of a $3.3 billion deal with Supervalu in 2013 and later merged the business with Safeway, creating a grocery chain of 2,230 stores.

Albertsons had been reported to be planning an initial public offering but put those plans on hold after Amazon acquired Whole Foods Market, according to media reports. The merger with Rite Aid enables Albertsons to avoid having to go through an IPO as Albertsons Companies’ shares are expected to trade on the New York Stock Exchange following the close of the transaction and the share exchange.

Credit Suisse and Goldman Sachs & Co. served as lead financial advisors to Albertsons and Schulte Roth & Zabel LLP acted as legal advisor. Bank of America Merrill Lynch also served as financial advisor to Albertsons and is providing committed financing for the proposed transaction together with Credit Suisse and Goldman Sachs.

Citi served as exclusive financial advisor to Rite Aid, and Skadden, Arps, Slate, Meagher and Flom LLP acted as legal advisor.

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