We use cookies to understand how you use our site and to improve your experience. This includes personalizing content and advertising. To learn more, click here. By continuing to use our site, you accept our use of cookies, revised Privacy Policy and Terms of Service.
You are being directed to ZacksTrade, a division of LBMZ Securities and licensed broker-dealer. ZacksTrade and Zacks.com are separate companies. The web link between the two companies is not a solicitation or offer to invest in a particular security or type of security. ZacksTrade does not endorse or adopt any particular investment strategy, any analyst opinion/rating/report or any approach to evaluating individual securities.
If you wish to go to ZacksTrade, click OK. If you do not, click Cancel.
Rite Aid Down on Walgreens Deal Offer Price Cut & Delay
Read MoreHide Full Article
After the reports of the U.S. Federal Trade Commission’s (“FTC”) rejection of the mega-deal surfaced last week, it was likely that the Rite Aid Corp. and Walgreens Boots Alliance Inc. (WBA - Free Report) merger would eventually be pushed back. This came true with yesterday’s announcement, where Rite Aid and Walgreens jointly agreed upon a Jul 31, 2017 deadline for the deal and slashed the offer price to accommodate more store divestitures that would help gain regulatory approval.
Consequently, shares of Rite Aid plunged more than 17% to $5.72, hitting its 52-week low of $5.70 during the day. Moreover, the Rite Aid stock declined more than 6% in the last week, as news regarding the FTC opposition for the long-awaited deal surfaced.
Overall, shares of Rite Aid have declined about 28% in the past one year, significantly underperforming the Zacks categorized Retail – Drug Stores industry’s fall of 11.3%.
Meanwhile, shares of Walgreens, which declined in the initial trading session, recovered in the latter half to close down only 2 cents at $81.48 on Jan 30. Moreover, shares of Walgreens have considerably outperformed the Zacks categorized Retail – Drug Stores industry with 1.8% increase in stock price in the past one year.
The New Deal
Walgreens and Rite Aid have now lowered the per share price for the deal to range between $6.50 and $7.00 based on the number of stores that need to be divested. The deal is now anticipated in the range of $6.84–$7.36 billion based on Rite Aid’s outstanding shares of nearly 1.05 billion. The companies had originally agreed upon an offer price of $9 per share in Oct 2015, which means a more than $2 billion cut in the total deal value from the previous $9.4 billion.
The six-month extension to Jul 31, 2017, aimed at buying more time to satisfy regulators, marks the second delay in the completion of the deal. Earlier, the companies had agreed to a deadline of Jan 27, 2017. Further, Walgreens will now be required to divest up to 1,200 Rite Aid stores in order to engage in talks with regulators. This marks an increase of 200 stores from the previously targeted store divestitures of 1,000 stores.
Per the new terms, the exact price of the deal will be determined on the number of shares divested to gain regulatory approvals. The companies estimate a per share price of $7 if 1,200 stores are to be divested, against a price of $6 per share if 1,000 or lesser stores are required to be divested. Further, the companies indicated that if the store divestitures fall between 1,000 and 1,200, the price per share for the deal will be arrived at based on pro-rata calculations.
Background
With regard to store divestitures, Walgreens had already signed an agreement to offload 865 Rite Aid stores to Fred’s Inc. for $950 million in Dec 2016. While this deal continues uninterrupted despite the delay in the merger, buyers for the additional store divestitures are still to surface.
Fred’s did not bear any major impact from the delay in the Rite Aid-Walgreens merger, as shares of this smaller rival closed up 1.3% at $14.29 on Jan 30.
As evident from the revised terms, Rite Aid and Walgreens are still hopeful of completing the deal. The merger is expected to create a drug store behemoth with over 11,000 stores in the U.S., even if the companies divest up to 1,200 stores. This will still keep the merged company on the No. 1 spot based on size, leaving behind its closest competitor CVS Caremark Corp. (CVS - Free Report) .
While Rite Aid currently operates nearly 4,600 stores, Walgreens runs about 8,175 stores in the U.S. Additionally, Walgreens has international exposure, particularly in the U.K., operating a total of nearly 13,000 stores in 11 countries.
Conclusion
While the extension of deadline and lowered offer price, gives investors and the companies a hope that the merger will see the light of day. Whether or not FTC regulators will approve the deal in the next six months is still a question to ponder upon.
In addition to the stocks discussed above, would you like to know about our 10 finest tickers for the entirety of 2017?
Who wouldn't? These 10 are painstakingly hand-picked from 4,400 companies covered by the Zacks Rank. They are our primary picks to buy and hold. Be among the very first to see them >>
See More Zacks Research for These Tickers
Normally $25 each - click below to receive one report FREE:
Image: Bigstock
Rite Aid Down on Walgreens Deal Offer Price Cut & Delay
After the reports of the U.S. Federal Trade Commission’s (“FTC”) rejection of the mega-deal surfaced last week, it was likely that the Rite Aid Corp. and Walgreens Boots Alliance Inc. (WBA - Free Report) merger would eventually be pushed back. This came true with yesterday’s announcement, where Rite Aid and Walgreens jointly agreed upon a Jul 31, 2017 deadline for the deal and slashed the offer price to accommodate more store divestitures that would help gain regulatory approval.
Consequently, shares of Rite Aid plunged more than 17% to $5.72, hitting its 52-week low of $5.70 during the day. Moreover, the Rite Aid stock declined more than 6% in the last week, as news regarding the FTC opposition for the long-awaited deal surfaced.
Overall, shares of Rite Aid have declined about 28% in the past one year, significantly underperforming the Zacks categorized Retail – Drug Stores industry’s fall of 11.3%.
Meanwhile, shares of Walgreens, which declined in the initial trading session, recovered in the latter half to close down only 2 cents at $81.48 on Jan 30. Moreover, shares of Walgreens have considerably outperformed the Zacks categorized Retail – Drug Stores industry with 1.8% increase in stock price in the past one year.
The New Deal
Walgreens and Rite Aid have now lowered the per share price for the deal to range between $6.50 and $7.00 based on the number of stores that need to be divested. The deal is now anticipated in the range of $6.84–$7.36 billion based on Rite Aid’s outstanding shares of nearly 1.05 billion. The companies had originally agreed upon an offer price of $9 per share in Oct 2015, which means a more than $2 billion cut in the total deal value from the previous $9.4 billion.
The six-month extension to Jul 31, 2017, aimed at buying more time to satisfy regulators, marks the second delay in the completion of the deal. Earlier, the companies had agreed to a deadline of Jan 27, 2017. Further, Walgreens will now be required to divest up to 1,200 Rite Aid stores in order to engage in talks with regulators. This marks an increase of 200 stores from the previously targeted store divestitures of 1,000 stores.
Per the new terms, the exact price of the deal will be determined on the number of shares divested to gain regulatory approvals. The companies estimate a per share price of $7 if 1,200 stores are to be divested, against a price of $6 per share if 1,000 or lesser stores are required to be divested. Further, the companies indicated that if the store divestitures fall between 1,000 and 1,200, the price per share for the deal will be arrived at based on pro-rata calculations.
Background
With regard to store divestitures, Walgreens had already signed an agreement to offload 865 Rite Aid stores to Fred’s Inc. for $950 million in Dec 2016. While this deal continues uninterrupted despite the delay in the merger, buyers for the additional store divestitures are still to surface.
Fred’s did not bear any major impact from the delay in the Rite Aid-Walgreens merger, as shares of this smaller rival closed up 1.3% at $14.29 on Jan 30.
As evident from the revised terms, Rite Aid and Walgreens are still hopeful of completing the deal. The merger is expected to create a drug store behemoth with over 11,000 stores in the U.S., even if the companies divest up to 1,200 stores. This will still keep the merged company on the No. 1 spot based on size, leaving behind its closest competitor CVS Caremark Corp. (CVS - Free Report) .
While Rite Aid currently operates nearly 4,600 stores, Walgreens runs about 8,175 stores in the U.S. Additionally, Walgreens has international exposure, particularly in the U.K., operating a total of nearly 13,000 stores in 11 countries.
Conclusion
While the extension of deadline and lowered offer price, gives investors and the companies a hope that the merger will see the light of day. Whether or not FTC regulators will approve the deal in the next six months is still a question to ponder upon.
While Rite Aid carries a Zacks Rank #4 (Sell), Walgreens has a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Zacks' Top 10 Stocks for 2017
In addition to the stocks discussed above, would you like to know about our 10 finest tickers for the entirety of 2017?
Who wouldn't? These 10 are painstakingly hand-picked from 4,400 companies covered by the Zacks Rank. They are our primary picks to buy and hold. Be among the very first to see them >>