A jilted bride is closing in on a second date at the altar, and investors are trickling back into Rite Aid (NYSE:RAD). Shares of the drugstore operator rose 10.3% last week, moving higher as Rite Aid and supermarket giant Albertsons race to convince shareholders to vote in favor of the deal in two weeks. 

A series of SEC filings showing third-party articles in support of the deal is giving Rite Aid the platform to begin selling reluctant shareholders on the deal that would create a $24 billion grocery and drugstore giant. Market sentiment has been betting against the union. Rite Aid shares have fallen since announcing plans to merge with Albertsons. Investors are concerned about the debt-laden ways of Albertsons, a pressure point after surviving Rite Aid's own balance sheet makeover following its consolation prize of a partial asset sale. It also doesn't help that Albertsons hasn't been at its best financially lately, a move that led to this proposed pairing as a way to go public instead of attempting an IPO of its own. 

Rite Aid investors will also be only getting a 28% to 29.6% stake in the merged company, a move that makes sense since groceries will make up two-thirds of the combined revenue but a sticking point nonetheless. The narrative has been working against the transaction, but the shares rising last week as the voting deadline approaches ahead of the Aug. 9 Rite Aid stockholder meeting suggest that sentiment may be turning in favor of the combination. 

Rite Aid spot promoting Pharmacy Champions.

Image source: Rite Aid.

Second act

Rite Aid's investor presentation on Tuesday offered up some refreshing insight and growth projections. The stock has gone on to move higher in each of the four trading days since the presentation, a good sign that its message is being heard. The stock failed to make a move after the initial Rite Aid/Albertsons Analyst Day in mid-May. 

Albertsons and Rite Aid are playing up the merger as a vital move in competing against the retail and online retail giants that are gnawing away at legacy grocery store and pharmacy chains. The two companies will enhance each other's ecosystem, paving the way for Rite Aid within Albertsons more than 20 different concepts as well as Albertsons brands showing up on Rite Aid shelves. The increased scale and density would create a combined company ringing up $83 billion in annual sales and improving its adjusted EBITDA to $3.7 billion. 

Rite Aid sees $375 million annual cost synergies and $3.6 billion in incremental annual revenue opportunities within the next four years. The drugstore operator is urging shareholders to vote in favor of the deal, arguing that it's actually a favorable transaction with Rite Aid stockholders getting nearly 30% of the new company because Rite Aid's forward EBITDA would be just 19% of the combined company. 

It's also warning that life without the merger could be rough. Selling 1,932 of its stores and three distribution centers in a $4.375 billion transaction helped improve its balance sheet, but it remains a highly leveraged company at a time when reimbursement rates are declining. Rite Aid's latest quarter was uninspiring, as the chain posted an adjusted net loss from continuing operations on flat revenue growth. Transformation is necessary if Rite Aid is expected to continue as a stand-alone company, and those makeovers don't come cheap. Investors seem to be coming around to the need for the corporate combination, but we'll know for sure by early next month.