=Rite Aid (RAD) reported earnings on Thur 29 June 2017 (b/o)

• Rite Aid (RAD) and Walgreens (WBA) terminate merger, sign new agreement whereby Walgreens will acquire 2,186 stores, related distribution assets and inventory from Rite Aid for an all-cash purchase price of $5.175 bln; also reported earnings.
• Among the antitrust concerns was that the resulting drugstore giant—which would have challenged CVS Health—would have been able to bully pharmacy-benefit managers steering corporate and government drug plans.

Rite Aid (RAD) and Walgreens (WBA) terminate merger, sign new agreement whereby Walgreens will acquire 2,186 stores, related distribution assets and inventory from Rite Aid for an all-cash purchase price of $5.175 bln :

Rite Aid Corporation (RAD) announced that it has entered into an asset purchase agreement with Walgreens Boots Alliance, Inc. (WBA), whereby WBA will acquire 2,186 stores, related distribution assets and inventory from Rite Aid for an all-cash purchase price of $5.175 billion, on a cash-free, debt-free basis. Under the terms of the agreement, Rite Aid has the option to purchase generic drugs that are sourced through an affiliate of WBA at cost, substantially equivalent to Walgreens for a period of 10 years.

• The company also announced the immediate termination of the merger agreement, which was announced on October 27, 2015 and amended on January 29, 2017, under which WBA would have acquired all outstanding shares of Rite Aid. The decision to terminate the merger agreement follows feedback received from the Federal Trade Commission that led the company to believe that the parties would not have obtained FTC clearance to consummate the merger.
• In connection with the termination, WBA has agreed to pay Rite Aid a termination fee in the amount of $325 million in cash. In light of the termination of the merger agreement, the divestiture agreement with Fred's, Inc. (FRED) was also terminated, effective today.
• Rite Aid expects to use a substantial majority of the net proceeds from the transaction to repay existing indebtedness, significantly reducing Rite Aid's leverage levels. Rite Aid also expects that the federal tax gain on the sale of the assets will be largely offset by its net operating loss carryforwards, resulting in a minimal cash tax payment on this transaction.

Rite Aid misses by $0.04, misses on revs; enters new agreement with Walgreens (WBA) after merger agreement terminated:

• Reports Q1 (May) loss of $0.05 per share, excluding non-recurring items, $0.04 worse than the two analyst estimate of ($0.01); revenues fell 4.9% year/year to $7.78 bln vs the $8.29 bln Capital IQ Consensus.
• Same store sales for the quarter decreased 3.9 percent over the prior year, consisting of a 5.0 percent decrease in pharmacy sales and a 1.5 percent decrease in front-end sales. Pharmacy sales included an approximate 222 basis point negative impact from new generic introductions. The number of prescriptions filled in same stores, adjusted to 30-day equivalents, decreased 1.1 percent over the prior year period due in part, to exclusion from certain pharmacy networks that Rite Aid participated in the prior year. Prescription sales accounted for 67.9 percent of total drugstore sales, and third party prescription revenue was 98.3 percent of pharmacy sales.
• Adjusted EBITDA was $192.6 million or 2.5 percent of revenues for the first quarter compared to $286.0 million or 3.5 percent of revenues for the same period last year. The decline in Adjusted EBITDA is due to a decrease of $100.9 million in the Retail Pharmacy Segment, resulting from lower pharmacy gross profit, which decreased due to lower reimbursement rates, which the company was unable to fully offset with generic purchasing efficiencies and script count, partially offset by good cost control. Adjusted EBITDA in the Pharmacy Services Segment increased $7.4 million compared to the prior year as a result of higher gross profit.
• Walgreens (WBA)/Freds (FRED) transaction:
  • Rite Aid announced that it has entered into an asset purchase agreement with Walgreens Boots Alliance, Inc. (WBA), whereby WBA will acquire 2,186 stores, related distribution assets and inventory from Rite Aid for an all-cash purchase price of $5.175 billion, on a cash-free, debt-free basis. Under the terms of the agreement, Rite Aid has the option to purchase generic drugs that are sourced through an affiliate of WBA at cost, substantially equivalent to Walgreens for a period of 10 years.
  • The company also announced the immediate termination of the merger agreement, which was announced on October 27, 2015 and amended on January 29, 2017, under which WBA would have acquired all outstanding shares of Rite Aid. The decision to terminate the merger agreement follows feedback received from the Federal Trade Commission that led the company to believe that the parties would not have obtained FTC clearance to consummate the merger.
  • In connection with the termination, WBA has agreed to pay Rite Aid a termination fee in the amount of $325 million in cash. In light of the termination of the merger agreement, the divestiture agreement with Fred's, Inc. (FRED) was also terminated, effective today.