Rite Aid Corp. (RAD, Financial), a U.S. drugstore chain, is down over 20% since close on Aug. 8. The drugstore chain’s stock fell 5.41% on Monday in a continued spiral since it announced the mutually agreed termination of a merger agreement with Albertsons Companies Inc.
The companies will not have to pay a termination fee, as per their merger agreement.
Governance changes at the company will also be evaluated as it prepares to engage with stockholders.
The failed merger would have created a company that operated 4,345 pharmacies and 319 health clinics. Shareholders were slated to vote on the $24 billion merger on Aug. 9, but the vote was canceled. The deal would have resulted in Rite Aid shareholders owning a 30% stake in the combined company. Shareholders said that the deal was in favor of management for both companies but did not have Rite Aid shareholders in mind.
Management canceled the merger agreement after determining that the merger would not have enough votes to be approved.
Rite Aid shares have fallen to $1.40 per share. The company’s fiscal first quarter 2019 is a cause for concern for investors, as its net loss came to $41.7 million, or 4 cents per share. Compared to the year prior, losses are up. In the first fiscal quarter of 2018, there was a net loss of $36 million with earnings per share of 3 cents.
Net income in the first quarter was boosted with an after-tax gain of $268.6 million from the company’s sale of 281 Walgreens (WBA) stores.
Revenues from continuing operations remained flat at $5.4 billion compared to the same quarter a year prior. Revenue for the company’s retail pharmacy segment fell 1.9% to $3.9 billion. The company’s pharmacy services segment experienced a 2.0% increase in sales to $1.5 billion.
Rite Aid’s future is in the hands of investors as the company has said that it will talk to investors to determine future changes.
Investors remain confident that the company’s stock will rebound after management issues are sorted out. Its reduced store count and lower debt are bonuses. The company will continue to struggle to keep market share from CVS and Walgreens.
Rite Aid's sale of 2,000 stores to Walgreens makes it less capable of competing with its rivals. Walgreens was going to buy the company in 2015 for $9.4 billion before backing out of the deal. There's no clear path going forward for the company, with investors waiting to determine its future.
Disclosure: The author does not own any stakes in the listed equities.
