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Amazon Looms Over Albertsons-Rite Aid Deal

The grocery store operator and the drugstore chain are combining to create a retailer with 4,350 pharmacy counters and $83 billion in annual revenue.
Matthew HellerFebruary 20, 2018

Grocery store operator Albertsons will acquire part of pharmacy chain Rite Aid in a move to create a retail behemoth that can compete more effectively with Amazon.

The deal reflects not only Amazon’s growing share of grocery purchases but its potential disruption of the health care industry. The e-commerce giant has teamed up with Berkshire Hathaway and JPMorgan Chase to form a not-for-profit company to provide health care for their employees.

The combination of Albertsons and Rite Aid will operate about 4,350 pharmacy counters and 320 clinics across 38 states and Washington and would have $83 billion in annual revenue.

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Rite Aid agreed last year to sell 1,932 stores and three distribution centers to Walgreens for $4.38 billion after the companies failed to complete an even bigger deal, leaving it with about 2,569 drug stores.

“The new company will have an expanded footprint and be ranked first or second in 66 percent of the top metropolitan areas in the United States and will be ranked first or second in 70 percent of pharmacy locations,” Albertsons and Rite Aid said Tuesday in a joint statement.

Under the terms of the deal, Rite Aid shareholders would get $1.83 in cash and a share of Albertsons stock for every 10 shares of Rite Aid they own or 1.079 shares of Albertsons stock for every 10 shares of Rite Aid they own.

Albertsons will be able to go public — with Rite Aid shareholders owning 28% to 29.6% of the combined company — after being controlled since 2005 by private equity firm Cerberus Capital Management.

As Reuters reports, the deal is “the latest in a wave of consolidation in the drug retailing sector, which is looking to cut costs amid weak reimbursement rates and lower generic drug prices. At the same time, Amazon’s foray is widely expected to disrupt the industry, prompting drug chains to beef up their businesses.”

Rite Aid’s larger rival CVS Health agreed to buy insurer Aetna for $69 billion last month, while Walgreens is also reported to have made a takeover approach for drug distributor AmerisourceBergen.