Walgreens Boots Alliance Inc. on Tuesday announced a deal to buy Rite Aid Corp., a transaction that would further expand the company’s role in the distribution of medications in the U.S. (NASDAQ:WBA) has been given a consensus one year stock price target of $97.125 per share according to analysts polled by Zacks Research.
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A combined Walgreens/Rite Aid would be the clear rival to CVS Health, which operates around 7,800 stores.
Walgreens is the No. 1 USA chain by number of stores, followed by CVS Health Corp. He told analysts then that Walgreens Boots Alliance was hungry for more deals, either internationally or in the United States.
Rite Aid ranks third.
The company also said it suspended the balance of its $3 billion share repurchase plan to fund its Rite Aid acquisition. On a brighter note, the company made substantial progress in its strategic cost reduction initiative as is evident from the accelerated rate of store closure during the reported quarter. The company also may have to close hundreds of outlets to ease federal regulatory concerns about competition.
This isn’t a good deal for WalgreensIf there’s anyone who should be cheering yesterday’s deal, it’s Rite Aid shareholders who have endured six consecutive years of losses between 2007 and 2012, numerous debt concerns, and relatively stagnant revenue since 2008. But on Tuesday, Rite Aid got its biggest jolt ever, rising more than 40 percent.
Management took numbers that they previously used to say how well Rite Aid was performing toward long-term goals and then twisted these numbers around to support selling Rite Aid at a low price to Walgreens. Walgreens, which reports earnings Wednesday, had about $4.5 billion of cash and equivalents and $16 billion of debt as of May. Mobile revenue more than doubled to $1.66 billion, or 61 percent of total retail revenue. Both firms said the transaction was expected to be completed half way through next year. It acquired Boots Alliance, a European pharmacy chain, last year. More recently, however, such rumors gained ground after the healthcare industry saw a spate of mergers and acquisitions among drug-makers, health insurance companies, and pharmacy retailers. “Other benefits could be derived from marrying Walgreens’ wholesale operation with Rite Aid”.
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“I use a lot of coupons at Rite Aid”, she said. And she’s not thrilled with the idea of Walgreens taking over.
