Rite Aid

Heard on Bloomberg Chat: Rite Aid’s Inability to Spin Off Stores to Fred’s in Timely Manner Hurts Stock

1:22 PM, Jan 20, 2017 — Investors had expected a deal to spin off 865 Rite Aid (RAD) stores to Fred’s by Walgreens Boots Alliance (WBA) to be completed by Inauguration Day, but that didn’t happen, and now investors are worried.

Rite Aid shares dropped more than 10% Friday as investors were disappointed no deal was complete amid concerns that the Federal Trade Commission will not approve the deal, Evercore said in a note to clients, citing a report from Bloomberg.

“Overall, if the deal were not completed, we would expect a massive downside for RAD (likely to trade to $3.50 or below) given its size versus CVS and WBA and the recent degradation in operating performance,” Evercore said. “For WBA, the transaction is a more modest negative given the synergy potential and time committed to deal closure (being one of the more obvious transactions for WBA), however we would not expect WBA to sit on the capital for very long and would look for a combination of share repurchases and additional M&A in the not-too-distant future.”

A lack of a deal would be good for McKesson Corp. (MCK) as it would keep its largest client that provides about $12 billion revenue. It would be negative to AmeriSource Bergen (ABC) that would see estimates lowered due to a lack of additional volume, Evercore said.

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Companies: Rite Aid Corporation
Price: 7.67 Price Change: -0.94 Percent Change: -10.87