Albertsons and Rite Aid to Merge

Albertsons and Rite Aid to Merge

Grocery chain Albertsons and drug retailer Rite Aid have agreed to a merger, greatly expanding the footprint of the struggling pharmacy chain.

Albertsons said it has $59.7 billion in annual sales.

Albertsons, whose parent is owned by a consortium of investors led by private-equity firm Cerberus Capital Management, now operates more than 1,700 in-store pharmacies.

Both men were involved in efforts starting in late 1999 to restore Rite Aid after an accounting scandal under its former leadership almost sank the company. Walgreen tried unsuccessfully to buy all of Rite Aid a year ago but scuttled that deal after encountering regulatory resistance. However, by last summer the deal had been tweaked, with Rite Aid agreeing to transfer roughly 2,000 stores to Walgreens.

The board of directors will be composed of nine directors: four from Albertsons, four from Rite Aid and one jointly selected director. The new company will capitalize on enhanced data and analytics to unlock profitable growth through new customer acquisition, new merchandising programs, and demand forecasting, Albertsons and Rite Aid said. Albertsons also runs Jewel-Osco, Shaw's, Vons and Acme stores.

Both Walmart and supermarket operator Albertsons are dealing with a retail landscape being upended by e-commerce competitors like Amazon. In addition, customers can no longer use the Rite Aid online or mobile prescription refills, sot they must call or stop into the pharmacy to fill a prescription until the transition is complete.

"I think that the customer experience needs to be a bit more than just, "Oh, I just go to the pharmacy", or 'Oh, I just go to the grocery store, '" said David Grasso, business editor at Bold Media.

Most notably, previous year Albertsons acquired meal kit delivery startup Plated. Rite Aid reported revenue of $32.8 billion in its most recent fiscal year, which ended in March. That deal could turn numerous chain's 9,800 stores into one-stop-shop locations for an array of health care needs like blood work and eye or hearing care in addition to their traditional role of filling prescriptions.

The grocery chain has stepped up to pick up the remaining Rite Aid storefronts not already involved in its $4.3 billion sale of almost 2,000 stores to Walgreens, a deal struck after the companies failed to complete an even larger transaction in 2015. Like its drugstore chain competition, Rite Aid operates walk-in clinics that can deal with cases of the flu, sinus infections and other relatively minor complaints.

As of Monday, the pharmacy has officially joined the Walgreens prescription insurance network, which means copays could change. The deal is expected to close in the second half of this year, with Albertsons expected to trade on the New York Stock Exchange (NYSE) after it is finalized, following 2015's shelved initial public offering (IPO). Rite Aid shareholders will own a 28% to 29.6% stake in the company, depending on the results of cash elections, while Albertsons shareholders will own the rest. Rite Aid's well-known brand and pharmacy expertise should help Albertsons attract new customers to its in-grocery pharmacies.

"We know that scale matters", Bob Miller, Albertsons chief executive tells Haddon.