Rite Aid Corporation as well as Albertsons Companies announced on Wednesday they are terminating their merger agreement, the evening ahead of a shareholder vote over the deal.
The announcement will be a blow to both the pharmacy as well as the grocer, which are both facing mightier competitors in their respective industries, nevertheless were unable to structure a deal in which sufficiently appealed to investors.
The $24 billion deal, announced in February, has faced push-back by numerous retail investors as well as top ten shareholder Highfields Capital Management. Critics have argued the deal provides Albertsons’ private equity owner, Cerberus Capital Management, a vehicle to take the company public without rewarding Rite Aid shareholders in turn.
Adding to mounting challenges, influential investor advisory firms Glass Lewis as well as Institutional Shareholder Services in July urged investors to vote against the tie-up.
Albertsons, though, said Wednesday the idea was unwilling to renogotiate the terms of the deal
“After careful consideration of all information available to our board of directors through today, we were unwilling to change the terms of the merger,” the idea said in a statement.
Rite Aid CEO John Standley, meantime, said in a statement, “While we believed inside the merits of the combination with Albertsons, we have heard the views expressed by our stockholders as well as are committed to moving forward as well as executing our strategic plan as a standalone company.”
Rite Aid also said Wednesday in which its board will be “evaluating governance improvements at the company.” The company added the idea will “continue to engage with stockholders” as the idea evaluates those improvements. Neither Rite Aid nor Albertsons will pay a break-up fee.
The pharmacy will hold an annual meeting Oct. 30, 2018.
Shares of Rite Aid closed Wednesday at $1.74 a share, up 1.16 percent, giving the idea a market capitalization of $1.86 billion. Its shares had tumbled roughly 24 percent since the idea announced the deal in February.
Albertsons was formed by Cerberus as well as a consortium of investors in 2006. The investment firm later merged Albertsons with the grocer Safeway in 2015. nevertheless plans to take Albertsons public were sidelined by market volatility as well as, later, Amazon’s acquisition of Whole Foods in which upended the grocery market.
The grocer has also stumbled in comparison to its peers like Kroger, which has had positive same-store sales the past two fiscal years, ISS said. Albertsons, by contrast, showed same-store sale growth inside the most recent two quarters, preceded by negative same-store sales inside the past two fiscal years, ISS said.
The grocer will be also highly leveraged, with $12 billion in long-term debt as well as capitalized leases.
Rite Aid has had its own challenges. Regulators thwarted its attempts to sell to Walgreens Boots Alliance, forcing them to whittle down a sale of Rite Aid’s entire 4,0 store footprint to just 1,932 locations. Its competitors, which right now include Walgreens as well as a proposed CVS Health-Aetna tie-up, dwarf the idea in size.
the idea earlier in which week cut its 2019 guidance, citing pressure by generic-drug makers.
Still, investors as well as shareholder advisory firms weres unsure the deal as structured, as well as the $375 million in cost-savings the retailers say the idea will generate, could sufficiently absolve them of their woes.
“Strategically, the proposed merger appears to be a step inside the right direction, as the idea provides [Rite Aid] with increased scale as well as diversification. However, the transaction could introduce a brand-new set of risks associated with the grocery business, as well as the combined company’s leverage could limit investment in two evolving business environments,” ISS wrote.
ISS also said in which potential conflicts of interest inside the negotiating process “heightened” its concerns about the deal’s benefit for Rite Aid shareholders. Among them, Albertsons notified Rite Aid CEO the idea could like him to be chief executive of the combined company, while still negotiating the deal. Rite Aid later created a negotiating committee in which excluded Standley, to negotiate with Albertsons.