Albertsons Cos., Rite Aid to merge

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John Standley to lead combined company, Bob Miller to serve as chairman

BOISE, Idaho, and CAMP HILL, Pa. — Albertsons Cos. plans to merge with Rite Aid Corp. in a deal that will take the supermarket retailer public.

Albertsons Cos. and Rite Aid said Tuesday that the combined company will generate pro forma revenue of about $83 billion and operate about 4,900 stores, 4,350 pharmacy locations and 320 in-store health clinics across 38 states and Washington, D.C., serving more than 40 million customers per week.

Most Albertsons Cos. pharmacies are slated to be rebranded as Rite Aid, and the company will continue to operate Rite Aid stand-alone pharmacies.

Plans call for current Rite Aid chairman and chief executive officer John Standley to become CEO of the merged company, with current Albertsons Cos. chairman and CEO Bob Miller serving as chairman.

Albertsons Cos. shareholders would hold a majority stake in the combined company, which will be public. Currently privately owned, Albertsons Cos. is backed by an investment consortium led by Cerberus Capital Management LP, which also includes Kimco Realty Corp., Klaff Realty LP, Lubert-Adler Partners LP and Schottenstein Stores Corp. Albertsons Cos. had filed for an initial public offering in the summer of 2015 but several months later said it was postponing the IPO indefinitely.

After the Albertsons-Rite Aid merger is completed, the company will be led by executives from both organizations and have dual headquarters in Boise, Idaho, and Camp Hill, Pa. The name of the merged company is expected to be determined by the close of the transaction.

John Standley_Rite Aid

John Standley

“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 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 shareholders.”

Under the Albertsons-Rite Aid merger agreement, Rite Aid shareholders — in exchange for every 10 shares of Rite Aid common stock — can elect to receive one share of Albertsons Cos. common stock plus about $1.83 in cash or 1.079 shares of Albertsons Cos. stock. The companies said that, depending on the results of cash elections, Rite Aid shareholders would own a 28% to 29.6% stake and current Albertsons Cos. shareholders would own a 70.4% to 72% stake in the combined company on a fully diluted basis.

Albertsons Cos. and Rite Aid didn’t disclose a total value for the deal, but The Wall Street Journal estimated the transaction’s overall value at approximately $24 billion.

The transaction is expected to close early in the second half of 2018, pending approval of Rite Aid shareholders, regulatory approvals and other customary closing conditions. The transaction has been unanimously approved by the boards of directors of both companies.

“The hallmark of Albertsons Cos. business has been to become the favorite local supermarket of our customers,” Miller stated. “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.”

Albertsons Cos. and Rite Aid projected annual run-rate cost synergies of $375 million in about three years for the merged company, with access potential annual revenue opportunities of $3.6 billion. Cost synergies will be realized mainly through procurement savings, efficiencies from a combined supply chain, combined distribution and fulfillment channels, and leveraging manufacturing capabilities, they said.

Bob Miller_Albertsons Cos.

Bob Miller

More than 60% of the cost synergies are expected to be realized in the first two years after the transaction closes, according to Albertsons Cos. and Rite Aid. They said revenue opportunities include partnering with payors — including Rite Aid’s EnvisionRx pharmacy benefit management subsidiary — through preferred networks to drive additional high-value customers; connecting Rite Aid’s pharmacy customer base to Albertsons Cos. via loyalty programs and target marketing; leveraging Albertsons Cos. grocery capabilities and Rite Aid’s pharmacy expertise to enhance the customer offering; and driving traffic through an omnichannel experience.

Plans also call for specialty pharmacy offerings and in-store clinics, from Rite Aid’s RediClinic subsidiary, in larger Albertsons Cos. supermarkets as well as in stand-alone Rite Aid stores. Other growth opportunities, the companies said, include an enhanced store brand portfolio — including Albertsons’ Cos. O Organics and Lucerne billion-dollar own brands and Rite Aid’s B4Y and Daylogic health and wellness brands — plus an expanded omnichannel platform offering a range of digital channels and same-day food and prescription delivery options from stores and via Drive Up & Go.

Albertsons Cos. and Rite Aid noted that the merged company will be ranked first or second in 66% of the top U.S. metropolitan areas and first or second in 70% of U.S. pharmacy locations. In addition, the combined entity will have a base of 25 million active loyalty program members.

“As a long-term partner to Albertsons Companies’ world-class management team, this transaction highlights Cerberus’s confidence in this team and our conviction in the underlying customer focus driving this combination,” commented Lenard Tessler, vice chairman and senior managing director at Cerberus. “As significant shareholders, we are very optimistic about the future of the combined company.”

The merged company’s board will have nine directors, including four named by Albertsons Cos. (including Miller and Tessler), four named by Rite Aid (including Standley) and one jointly named. A majority of the board will be independent, and Tessler will serve as lead director.

Cerberus reportedly had been a potential suitor for Rite Aid stores as part of required divestitures for the failed Walgreens-Rite Aid merger. Under a downsized deal later reached with Walgreens Boots Alliance, Rite Aid is now in the process of selling 1,932 stores, three distribution centers and related assets to WBA for $4.375 billion. Earlier this month, Rite Aid said that so far it has transferred ownership of 1,114 stores and related assets to WBA for cash proceeds of $2.424 billion.

After completion of the asset sale to WBA, Rite Aid will have 2,569 drug stores served by six distribution centers. Overall, Albertsons Cos. now has more than 2,300 supermarkets and 1,700-plus in-store pharmacies in 35 states and the District of Columbia under 20 retail banners, including Albertsons, Safeway, Vons, Jewel-Osco, Shaw’s, Acme, Tom Thumb, Randalls, United Supermarkets, Pavilions, Star Market, Haggen and Carrs.



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