Rite Aid: Abandon Ship

Breaking news.

Summary

  • Rite Aid and Walgreens have struck a new deal.
  • The decision confirms the merger was likely sunk.
  • Rite Aid is not a stock to buy and hold.

Rite Aid (RAD) and Walgreens (WBA) have struck a new deal and scrapped the merger that was under review by the FTC, implying the merger was likely going to be blocked. This new deal comes despite some last-minute optimism from investors that the deal might go through. This new deal involves Walgreens buying 2,186 of Rite Aid’s stores for $5.17 billion and also provides Rite Aid with a $325 million termination fee.

As I wrote in two articles this week (here and here), the merger seemed likely to fail due to a multitude of factors including the duration of the review process, the request by the FTC for additional information last month, and a report that the acting head of the Bureau of Competition, Tad Lipsky, recommended a lawsuit to block the deal. My suspicions have now been confirmed.

The next question to ask is where do RAD investors go from here? The stock is crashing on the news of this store deal, but I think the stock still has more downside left. Going forward, Rite Aid will be operating 2,350 stores and intends to use the proceeds of the deal to pay down its debt and strengthen its balance sheet. While this could push away the specter of insolvency, Rite Aid is still in a poor financial position with debt outweighing cash by more than $2 billion. Rite Aid has the same issues, it’s just a smaller company now.

Full story at Seeking Alpha

Leave a Comment