Grocery chain Albertsons has announced that it intends to purchase Rite Aid in a deal that will involve both cash and stock. A combination of Rite Aid and Albertsons would have an approximate value of around $24 billion. This comes in the wake of a consolidation wave in the grocery sector as firms react to the threat posed by online retail.
Once the deal is concluded shares of Albertsons will trade on NYSE. The grocery chain filed an initial public offering three years ago where it had hoped to be valued at around $24 billion but that plan was canceled. Three years ago also Rite Aid attempted to sell stores numbering 4,600 to Walgreens without success as regulators whittled down the acquisition to 1,932 retail outlets at a price of $4.37 billion.
“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,” the chairman and chief executive officer of Rite Aid, John Standley, said.
Currently the market value of Rite Aid is around $2.31 billion. Once the two firms merge their net debt is expected to be approximately $14 billion per Moody’s, a credit rating firm. The figure could however vary based on how shareholders will be compensated.
After the deal closes Rite Aid’s stake in the combined firm will be 29.6% while shareholders of Albertsons will have a 72% stake. Revenues of the combined company are expected to be around $83 billion. The chairman and chief executive officer of Albertsons, Bob Miller, will take up the chairman’s position in the new firm while Standley will become the chief executive.
According to Moody’s the deal gives the combined firm, which will possess 4,350 pharmacies and 4,900 stores, the scale necessary in order to compete in the highly competitive drug and food retail environment.
In the face of the threat from online retailers Albertsons had acquired Plated, a meal kit company, and inked an agreement with Instacart with a view to offering same-day grocery delivery. Previously Albertsons had been focusing largely on purchasing regional grocery chains as a growth strategy.
The deal also gives the private equity owner of Albertsons, Cerberus Capital Management, an opportunity to get listed a dozen years since it was formed. Cerberus Capital Management and an investor consortium formed Albertsons in 2006 and nine years later merged it with grocery chain Safeway.