Most of 2017 was rough for Rite Aid (RAD) shareholders.
In fact, the stock fell from a high of $8.77 in January to a low of $1.38 thanks in part to a failed merger with Walgreens Boots Alliance (WBA).
Back in October 2016 Walgreens (WBA) announced they would acquire RAD for $9.4 billion in cash.
Unfortunately, it quickly became obvious that the Federal Trade Commission (FTC) would not allow the No. 1 and 3 drug store chains to merge. As a result, Walgreens announced it would only acquire Rite Aid’s stores on the east coast. By September 2017 the companies secured regulatory clearance for that asset purchase.
Under the terms of the new deal, WBA will purchase 1,932 stores, three distribution centers and related inventory from Rite Aid in an all-cash deal worth $4.375 billion. Rite Aid also has the option to purchase generic drugs that are sourced through an affiliate of WBA at a cost substantially equivalent to Walgreens for a period of 10 years.
The transaction has since been approved by the Boards of Directors of both Rite Aid and WBA.
Both companies expect to transfer ownership of the stores in phases, one of which began in October 2017. Their goal is to complete the transfer of all stores by the spring of 2018.
"To date, we have transferred 357 stores and have received approximately $715 million in proceeds, which we have used to pay down debt," Chairman and CEO John Standley said, as quoted by Investors Business Daily.
Immediately following the completion of the transaction, Rite Aid will continue to operate approximately 2,600 stores and six distribution centers as well as EnvisionRx, its pharmacy benefit manager, RediClinic and Health Dialog
In recent weeks, the stock has rebounded from that low of $1.38 to a high of $2.21.
For the third quarter, the company reported net income of $81 million or $0.08 per diluted share, compared to the prior year’s net income of $15 million ($0.01 per diluted share).
Currently 402 institutions own 52% of Rite Aid’s stock, and their six top institutions bought 42 million more shares than they sold for the latest quarter.
Rite Aid is our “Stock of the Year” because they have excellent fundamentals, a huge influx of cash from the sale to Walgreens, and less stores which will make it much easier to restructure. Rite Aid is in better shape today than a year ago, when Walgreens wanted to buy the company for $9.4 billion.
We think the stock has the potential to move significantly over the next 12 to 18 months. With a market cap of only $2 billion, the stock could be an acquisition candidate.