Rite Aid Corp. and Albertsons Cos. agreed to scrap a merger that would have helped reshape the U.S. retail and health-care industries, as opposition to the transaction increased before a shareholder vote.
“While we believed in the merits of the combination with Albertsons, we have heard the views expressed by our stockholders and are committed to moving forward and executing our strategic plan as a standalone company,” Rite Aid Chief Executive Officer John Standley said in a statement Wednesday.
Rite Aid canceled a special shareholders meeting scheduled for Thursday and its board is evaluating governance changes at the company. There won’t be a termination fee for either side, according to the statement.
The collapse of the deal is the second time a deal has failed for Rite Aid, after its merger with Walgreens Boots Alliance Inc. last year fell apart. Retailers have been under growing pressure from online competitors, affecting grocers and the corner drugstore alike. The deal would have expanded Albertsons to help it combat companies like Amazon.com Inc. that are increasing their food offerings.
Rite Aid management “will now after multiple attempts to sell the business have to go back to the drawing board, which is likely going to be a heavy lift,” Evercore ISI analyst Ross Muken said. “We see this as exemplifying our belief this was a ‘lose, lose’ scenario.”
In February, Rite Aid agreed to be bought by Albertsons, which is backed by private-equity firm Cerberus Capital Management LP. The transaction would have given Albertsons shareholders ownership of more than 70 percent of the combined company. It also would have given the grocer’s private-equity owners a path to exit their 2006 investment without having to go through an initial public offering in a turbulent market.
In the weeks leading up to the deal, however, two prominent proxy advisers recommended that shareholders vote against it. It “does not appear that Rite Aid shareholders would receive a fair ownership interest in the combined company,” said Institutional Shareholder Services Inc. in a report in late July obtained by Bloomberg.
Glass Lewis & Co. opposed the transaction, saying it would yield no premium for Rite Aid holders. It also said the negotiations “raise significant questions around possible conflicts of interest” as a Rite Aid board member negotiating the deal had “an ongoing outside relationship with Cerberus.”
Rite Aid on Monday reduced its full-year earnings projections and said its generic purchasing efficiencies were significantly below its previous experience.
While the prescription drug businesses at pharmacies has been relatively stable, front-of-the-store sales have been in decline. Giant retailers like Walmart Inc. and Amazon.com have been looking to play a bigger role, and the result has been consolidation in the industry. CVS Health Corp. agreed last year to pay about $68 billion for health insurer Aetna Inc.
The Albertsons agreement came after Rite Aid’s failed attempt to sell itself to Walgreens. That merger fell apart last year amid scrutiny by U.S. antitrust authorities. In September, Walgreens won approval to buy 1,932 stores, three distribution centers and related assets for $4.4 billion. The store purchases were completed earlier this year.
The Walgreens deal would have given Rite Aid shareholders at least $6.50 a share in cash. Under the Albertsons deal, Rite Aid shareholders would have gotten at most 18.32 cents a share in stock, plus Albertsons stock. Rite Aid shares closed at $1.74 in New York on Wednesday.
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