Rite-Aid rips off the bandaid of Albertsons merger talks

In a not so surprising move, Rite-Aid ($RAD) has tossed out plans to acquire Albertsons, and is seeing some immediate benefits from it, jumping about 3.5% at end of day (including after-market trading). So why does this make sense?

Looking back to January of 2017, Cerberus Capital (led by Steven Feinberg) lost a bid to Walgreens for the 865 drugstores that were up for sale by Rite-Aid. An interesting point of note, is that he placed the bid through Albertsons stores back then, and clearly has an interest in seeing the love child of Albertsons / Rite-Aid. Rite-Aid would have been a subsidiary of Albertsons, and there are some analysts who are looking at the deal saying that it was a sort of “reverse IPO” as it would have allowed Albertsons to become a public company overnight, much to the delight of Albertsons activist investors.

Spill on aisle five of the Rite-Aid merger

When you go to spend $24 billion on something, you usually need to make a case for it. Both companies brought up the fact that they are facing increased competition to Amazon ($AMZN), as well as fighting off industry threats such as WalMarts ($WMT) curbside grocery pickup, and Kroger’s ($KR) ClickList. Unfortunately, this strategy didn’t work out, and Rite-Aid investors are being rewarded.

Industry analysis of Rite-Aid shows small upside

Rite-Aid is a classic example of a company that you might want to stay far away from. Increased competition from high-data tech companies, expensive leases, high cost of staff, no dividend payment, and only modest (and we mean really modest) growth opportunities within the stock all mean you should sit this one out. Not only are there massive issues with this, you have a company who has basically failed to keep up with modern times, and is not staying market relevant.

So far, $RAD has lost ~26% this year, and ~11% year to date. Not good, and is still down ~38% from its 52 week high. A stock showing this much red will only be a good investment if you like throwing money away.


Updated September 13, 2020

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