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Albertsons/Rite Aid merger faces challenge ahead of key vote

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A week from Friday, shareholders of Rite Aid Corp. will decide if the independent pharmacy retailer can merge with Boise-based Albertsons Companies.

If 50% say yes – the deal is likely to happen. If it can’t reach that threshold, the next steps for the two companies are unclear.

  • Advisors say no: Two big shareholder advisory firms said a no vote was appropriate. Institutional Shareholder Services & Glass Lewis gave the tie-up a thumbs down.
    • ISS report: “It does not appear that Rite Aid shareholders would receive a fair ownership interest in the combined company, a concern heightened by potential conflicts of interest during the negotiation process and apparently reflected in the company’s underperformance since announcement.”
    • Glass Lewis: “We fail to see that the proposed combination represents a particularly attractive outcome for unaffiliated Rite Aid shareholders, each of whom has, in our view, been offered very little reason to conclude that management has secured full value under extant market conditions or that the Company would not benefit from continued implementation of its stand-alone operating strategy until a counterparty is prepared to deliver a clear and attractive value for control of Rite Aid,”
    • A Rite Aid spokesperson disagreed, telling Reuters the deal “will significantly improve Rite Aid’s growth prospects, financial strength and ability to deliver compelling long-term value for shareholders.”
  • Other shareholders against: Highfields Capital Management came out earlier this month and said it would vote its 4.4% stake against the deal. “The proposed transaction is in the best interests of Albertsons and Rite Aid management, but not Rite Aid shareholders,” Highfields said.
  • It’s about scale: The two companies have mounted a detailed campaign to gin up support for the deal – with an extensive website and letters to Rite Aid shareholders ahead of the vote.
    • Albertsons COO Jim Donald on CNBC: “Scale is big here. Scale is what we can use as we continue to [serve] customers online and  brick and mortar.”
  • Amazon looms: With the pending merger of Albertsons and Rite Aid on the table, Amazon announced it would acquire small prescription-by-mail company PillPack – one of a number of moves the web giant has taken in the drug space.
  • E-commerce perks up:  Albertsons said on a recent earnings call that sales from e-commerce more than doubled from the previous period – up 108%. The company has been working to drive initiatives – including home delivery, “Drive Up and Go,” meal delivery service Plated and a partnership with Instacart.
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