Rite Aid (RAD 25.00%) is alone again, naturally. The struggling drugstore operator announced this week that it won't be merging with Albertsons. Rite Aid realized that it wasn't going to get the votes it needed to pull off the corporate combination with the much larger grocery store operator that rang up $60 billion in sales last year.
Several retail and institutional investors were vocal about their opposition to the merger, and two leading shareholder advisory firms also concluded that this was a bad deal. The two parties agreeing to mutually nix the deal on the eve of the vote that they would inevitably lose isn't a surprise. However, with the stock taking an 11.5% hit on Thursday after the majority of shareholders got what they wanted, one has to wonder if the old adage is true about being careful what you wish for.
Image source: Rite Aid.
Recovering from the venom
It's easy to make enemies when you write about the financial markets. Taking a stand on a stock can infuriate those who see things differently and/or have money riding on an alternative perspective. I should know. I've written more than 20,000 articles over the past 23 years for The Motley Fool. I still can't recall the last time I received more negative comments on a piece than I did last week when I wrote about voting in favor of the proposed Albertsons merger.
Comments posted through some of the syndication partners that ran last week's piece accused me of being a paid shill, just because I had the gall to believe the combination of the drugstore chain and the supermarket behemoth would be the best move in the long run. I argued that the merger terms were fair, the synergies were real, and that Rite Aid would be doomed if it was ditched at the altar for the second time.
The common knock on the deal was that Rite Aid investors should be getting more than nearly 30% of the combined company, something that was echoed by the investor advisory firms that recommended voting against the deal. Others argued that someone out there would be willing to pay more, or that Rite Aid would thrive as a swinging single.
Someone swooping in with a sweetheart deal -- third time's the charm -- is not likely. The proposed merger with Albertsons was announced nearly six months ago, and the $65 million break-up fee wasn't going to be a deal-breaker for someone willing to shell out billions for Rite Aid. As for the drugstore chain being better off on its own, well, Thursday's 11.5% plunge tells you all you need to know about what Wall Street thinks of that plan.
Rite Aid hosed down its guidance on Monday. It sees savings from its generic-drug purchasing efficiencies coming in roughly $80 million lower than it was initially targeting for fiscal 2019. It is paring back its adjusted EBITDA outlook, and it no longer expects to close out the year with a small profit. Conspiracy theorists will argue that Rite Aid timed the release to drum up last-minute support for the vote, but at the end of the day, it still means Rite Aid on its own is going to be a challenging scenario.
This leaves investors now hoping that Albertsons can come back and sweeten its offer for Rite Aid. Institutional Shareholder Services, Glass Lewis, and a horde of "Rick's a shill" t-shirt-wearing shareholders may change their tune if they would be getting more than 29.6% of the combined company. Albertsons would have to be more desperate than Rite Aid at this point -- a long shot, but certainly within the realm of possibilities.
