According to Wall Street Journal, some shareholders of Rite Aid Corp. (NYSE: RAD) are planning to oppose the merger with grocer Albertsons Cos. since they believe this merger will undervalue Rite Aid.
Since Feb. 20, the day Rite Aid and Albertsons announced that they would merge, Rite Aid’s shares have fallen about 23 percent. Rite Aid investors who oppose this deal say they aren’t getting a big enough share of the company that would be formed by the combination. These investors believe Rite Aid would be better off overhauling its pharmacies on its own.
One of Rite Aid’s 10 biggest shareholders said it planned to vote against the deal because it doesn’t give shareholders a fair premium. This $24 billion deal would allow Rite Aid investors to exchange 10 of their shares for a share in the combined company plus $1.83 in cash, or 10 shares for 1.079 new shares. Rite Aid shareholders would own about 30% of the combined company.
Other Rite Aid shareholders say they don’t want to invest in the grocery industry, where competition from Amazon.com Inc. and discounters is hurting the sales and margins of traditional supermarkets.
Critics also say executives at the two companies are too close. Albertsons Chief Executive Bob Miller previously served on Rite Aid’s board. However, some of Rite Aid’s other large shareholders are big index funds that rarely oppose mergers.
Rite Aid has sold 1,932 stores to Walgreens in March. Currently Rite Aid has around 2,600 pharmacies, and Albertsons has around 2,300 grocery stores. The combined company would have 4,345 pharmacies in total.
Chief Executive of Rite Aid John Standley is still positive towards this merger, “It makes sense for us strategically and financially. The merger will transform Rite Aid,” he said in a call to investors on Thursday.