Not surprisingly, there are a number of stories in the press about what happens now that Albertsons and Rite Aid have called off their $24 billion merger, largely because a number of Rite Aid shareholders, including a couple of influential advisory firms, felt that the drug store chain was being undervalued in the proposed deal.
Here’s what the Wall Street Journal has to say about Rite Aid:
“It is a tough time to be in the drugstore business. Investors are hardly enthusiastic about brick-and-mortar retailers of any sort. Worse for pharmacy chains, potential disruption from Amazon looms large, after the retailing behemoth bought online pharmacy PillPack earlier this summer. CVS Health , one of the industry’s heavyweights, plans to diversify into health insurance with its planned acquisition of Aetna.
“Rite Aid’s biggest handicaps are lack of scale and too much debt. The heavily concentrated market for generic-drug buyers makes it hard for smaller players to get a good deal on pricing. Just on Monday, Rite Aid announced its net loss this fiscal year will be $125 million to $170 million because it is getting squeezed on drug prices. And a smaller retail presence makes it easier for health plans to exclude Rite Aid from preferred-pharmacy networks, according to analysts at RBC Capital Markets.
“Going it alone might not be desirable, but Rite Aid might not have many other options. Total debt amounts to nearly five times the current fiscal year’s projected earnings before interest, taxes, depreciation and amortization. That would make a deal by a private equity buyer less compelling. Selling to a larger pharmacy chain doesn’t seem practical in light of those regulatory issues.”
Meanwhile, CNBC writes that “the scuttled deal is just the latest in a string of disappointments for Cerberus, which has unsuccessfully tried to shed Albertsons multiple times. Those efforts include an IPO it abandoned at the last minute in 2015 as well as attempts to combine with both Sprouts Farmer Market and Whole Foods Market last year.
“Cerberus and a consortium of investors formed Albertsons in 2006 and merged it with Safeway in 2015. But the grocery industry has gotten significantly more difficult over the past decade, and Albertsons now finds itself confronted with fortified competitors and hampered with $12 billion in debt.”
Part of the problem is a pair of competitors: Amazon and Walmart. “Both giants are shifting the demographic focus, with Walmart going after higher-income shoppers than traditional, and Amazon going after lower-income. That means Albertsons is getting squeezed from both ends.” At the same time, both Walmart and Kroger have sought to up their digital games to compete with Amazon; while “Albertsons had made some headway in its own digital business, acquiring meal kit company Plated and expanding its partnership with delivery service Instacart … those efforts have been distracted by the efforts to integrate Rite Aid over the past few months and are limited by Albertson's own capital constraints.”
Here’s what the Wall Street Journal has to say about Rite Aid:
“It is a tough time to be in the drugstore business. Investors are hardly enthusiastic about brick-and-mortar retailers of any sort. Worse for pharmacy chains, potential disruption from Amazon looms large, after the retailing behemoth bought online pharmacy PillPack earlier this summer. CVS Health , one of the industry’s heavyweights, plans to diversify into health insurance with its planned acquisition of Aetna.
“Rite Aid’s biggest handicaps are lack of scale and too much debt. The heavily concentrated market for generic-drug buyers makes it hard for smaller players to get a good deal on pricing. Just on Monday, Rite Aid announced its net loss this fiscal year will be $125 million to $170 million because it is getting squeezed on drug prices. And a smaller retail presence makes it easier for health plans to exclude Rite Aid from preferred-pharmacy networks, according to analysts at RBC Capital Markets.
“Going it alone might not be desirable, but Rite Aid might not have many other options. Total debt amounts to nearly five times the current fiscal year’s projected earnings before interest, taxes, depreciation and amortization. That would make a deal by a private equity buyer less compelling. Selling to a larger pharmacy chain doesn’t seem practical in light of those regulatory issues.”
Meanwhile, CNBC writes that “the scuttled deal is just the latest in a string of disappointments for Cerberus, which has unsuccessfully tried to shed Albertsons multiple times. Those efforts include an IPO it abandoned at the last minute in 2015 as well as attempts to combine with both Sprouts Farmer Market and Whole Foods Market last year.
“Cerberus and a consortium of investors formed Albertsons in 2006 and merged it with Safeway in 2015. But the grocery industry has gotten significantly more difficult over the past decade, and Albertsons now finds itself confronted with fortified competitors and hampered with $12 billion in debt.”
Part of the problem is a pair of competitors: Amazon and Walmart. “Both giants are shifting the demographic focus, with Walmart going after higher-income shoppers than traditional, and Amazon going after lower-income. That means Albertsons is getting squeezed from both ends.” At the same time, both Walmart and Kroger have sought to up their digital games to compete with Amazon; while “Albertsons had made some headway in its own digital business, acquiring meal kit company Plated and expanding its partnership with delivery service Instacart … those efforts have been distracted by the efforts to integrate Rite Aid over the past few months and are limited by Albertson's own capital constraints.”
- KC's View:
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Here’s my idea for Albertsons. it is time to put in a call to Jack Ma, the co-founder and chairman of Alibaba, and tell him that it is time to talk about giving his company a major outpost in the US. There was speculation some time ago about Kroger having some sort of conversation with Alibaba, and that’s about the last thing Albertsons needs. What I think it does need is something that changes the game, and some sort of arrangement with Alibaba would do that.
The phone number in Hangzhou is (+86) 571-8502-2088.
As for Rite Aid, to be honest, I have no idea what the next step is. Most of the stores are mediocre, and it is a minor league player at best. Too much debt, and not enough of an innovation culture.
