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Why Rite Aid Shareholders Are Having Another Bad Day

By Brian Feroldi - Aug 9, 2018 at 11:09AM

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Shares drop by double-digits after the company announced the termination of a merger agreement. Here's what investors need to know.

What happened

Shares of Rite Aid Corporation (RAD -0.53%) are falling by double-digits for the second time this week. The stock is down 10% as of 10:11 a.m. EDT Thursday. Today's drop is attributable to the news that Rite Aid is canceling its merger with Albertsons.

So what

Rite Aid and Albertsons have officially announced that they are going to terminate their previously announced merger agreement.

A person in a sportcoat is tearing a piece of paper.

Image source: Getty Images.

"While we believed in the merits of the combination with Albertsons, we have heard the views expressed by our stockholders and are committed to moving forward and executing our strategic plan as a stand-alone company," said Rite Aid CEO John Standley.

With regards to "we have heard the views expressed by our stockholders," Standley is likely referring to the huge push-back that the company has faced from critics. Investor advisory firms such as Institutional Shareholder Services and Glass Lewis both said that they were against the merger because it didn't provide Rite Aid shareholders with enough of a takeover premium. Rite Aid also said that its Board is "evaluating governance changes at the company."

When coupled with Monday's news that Rite Aid lowered its guidance for the year, it isn't hard to figure out why shares are nose-diving again. 

Now what

With the merger no longer on the table, it's hard to find reasons to be bullish about owning Rite Aid's stock. Rite Aid clearly lacks the scale of industry giants like CVS Health and Walgreens Boots Alliance (not to mention, so it is hard to understand how this company will be able to effectively compete in the long term -- especially considering that this business continues to operate at a loss and is saddled with more than $3 billion in net debt.

Overall, Rite Aid remains in a very tough position. That's why my plan is to avoid this stock indefinitely no matter how "cheap" it might become.

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