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Rite Aid (RAD +0.00%) shareholders are the immediate winners of the recently announced buyout by Walgreens (WBA +0.01%). But what impact will the blockbuster deal have on competitor CVS Health (CVS +0.00%), and the broader retail pharmacy sector? Analysts Kristine Harjes and Michael Douglass discuss what the near future might hold for these companies.
A full transcript follows the video.
Michael Douglass: Assuming that everything goes according to plan and the FTC steps in, I think Rite Aid shareholders just got a 48% premium on what your stock was trading for a couple days ago.
Kristine Harjes: And the stock popped very nicely yesterday. It's given a little bit of that back, but I think you're still up around 40%. That's not bad.
Douglass: Yeah. If the deal goes through you get $9 a share, which is a pretty substantial gain if you purchased before this week. I think for Rite Aid this was a pretty darn good deal. Given the company's continuing difficulties achieving scale and closing underperforming stores and all these other things; in my head, this is a 'take the money and ride into the sunset' and 'congratulations, things went really well' kind of deal. In my head, for CVS shareholders, even if this deal goes through, I think it's really too soon to say that this is negative for CVS.
Again, CVS has done a very good job of expanding over the years. They acquired Caremark a few years back to get in the PBM [pharmacy benefits management] business, they acquired the Target pharmacies earlier this year and at a pretty good price point; they're doing a great deal to grow their network. Since this is a differentiated business in a lot of ways, particularly because of tobacco, CVS is still sitting pretty in my head.
I think what CVS shareholders will want to keep an eye on is what happens, whether this goes through, and then afterward, how the integration goes over the next couple of quarters. Walgreens didn't really do much to sign post what's going to happen over the next few quarters, so we'll be looking forward to seeing. Although, I believe they expected it to close sometime next year. I think it's a wait and see, but CVS is still in a very good spot.