Like everyone else waiting for the wrap-up of the Walgreens-Rite Aid merger, investment pundit Jim Cramer of TheStreet.com and CNBC’s “Mad Money” is getting impatient over the plodding antitrust review negotiations.
Now approaching its 18th month, Walgreens Boots Alliance’s planned acquisition of Rite Aid has a deal end date of July 31, as per an extension (the second) made earlier this year. The companies initially expected to finalize the merger by the end of calendar 2016.
“This deal has gone on so long that … Rite Aid has degraded,” Cramer said in an interview with TheStreet. “There was the thinking that this thing would close much faster. … Walgreens has actually had some tough times because of the length of this deal.”
“I want the deal to come to fruition or fall apart — soon,” Cramer said, adding that WBA would likely do a large buyback if the deal collapses.
One of the hurdles for Federal Trade Commission clearance of the transaction is whether Fred’s would be a viable competitor after buying stores divested by WBA-Rite Aid.
Fred’s has agreed to buy 865 or more Rite Aid stores in connection with the merger and may be required to purchase more, if required by the FTC. Published reports have said the FTC has concerns about Fred’s, which would be acquiring at least 200 more stores than it now operates and has reported poor financial results.
“We are hard-pressed to view Fred’s as a legitimate third competitor,” Wolfe Research analyst Scott Mushkin wrote in a research note Monday. “Indeed, taking a step back, we note that Rite Aid, which operates 4,550 stores, appears to struggle in an industry where scale is paramount. While we currently do not cover Rite Aid, we have been generally impressed with the management team’s operating acumen, the store’s customer loyalty program and the new store format. This begs the question: If Rite Aid is struggling, given its size, how would a much smaller, regional operator fare?
“With that said, the government clearly has a lot of discretion in what it will approve or not approve,” Mushkin added. “However, the current structure of the deal continues to make us leery that the transaction will ultimately be consummated.”
*Video courtesy of TheStreet.com.