As merger vote nears, Rite Aid seeks to persuade shareholders

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Since announcing the merger in February, Rite Aid has faced opposition from some investors who believe a Rite Aid-Albertsons union may not be the right fit, despite the added pressure on retailers to cut costs, expand their reach and differentiate themselves amid growing competition from online sales.

Rite Aid, critics say, might do better by partnering with another retailer to run its pharmacies, rather than join a grocery company facing stiff competition and tighter margins.

Others have said Rite Aid should consider selling its pharmacy benefits business, EnvisionRxOptions, to a large company like Amazon, which recently announced plans to buy online pharmacy PillPack.

Despite the criticisms, Rite Aid has continued to tout the merger with Albertsons as the best long-term move to expand its reach and diversify its revenue and profit streams.

A special shareholder meeting to vote on the deal is slated for Aug. 9 in New York City.

“Based on the growth and value creation opportunities presented by the proposed combination with Albertsons, we are confident that the merger represents the right combination, with the right partner, at the right time,” Rite Aid said in its July 10 letter to shareholders.

In the letter, Rite Aid said the unique pharmacy and grocery combination is needed as plenty of other companies are tying the knot, especially in health care.

“As the ongoing consolidation across our industry continues, it’s clear that our business environment is changing faster than ever before,” the letter said. “These changes further emphasize the importance of completing our proposed merger with Albertsons in order to accelerate the pace of our transformation.”

Rite Aid recently made $4.4 billion by selling 1,932 stores and three distribution centers to Walgreens, shrinking Rite Aid’s store count. It used the proceeds to pay down debt. The Albertsons deal would combine about 2,600 remaining Rite Aid stores with about 2,300 stores Albertsons owns across the United States.

But under the proposed deal, Rite Aid shareholders stand to own only about 30 percent of the new company, while shareholders of closely held Albertsons would control the other 70 percent.

Some Rite Aid investors have said the deal undervalues Rite Aid, citing the poor performance of the stock, and they believe the company should weigh other options. Others have expressed concern about Rite Aid taking on new debt from Albertsons after the Walgreens deal.

“Since the divestiture of nearly 2,000 stores to Walgreens, Rite Aid has vastly improved its balance sheet, and its stable of remaining assets and market position are enviable,” said Andrew Bode, a Rite Aid shareholder from Texas.

If shareholders approve, the merger is expected to close early in the second half of this year. The combined business would be known as Albertsons Cos. Inc.