The owner of Safeway and other grocery brands is buying the drugstore chain Rite Aid as retailers continue to plunge deeper into health care and adjust to swiftly changing shopping habits.
Continue Reading Below
Albertsons Companies executives said Tuesday that their purchase of Rite Aid's more than 2,500 remaining stores will help the combined company become a "leader in food, health and wellness."
The combination will have 4,892 stores and more than 4,300 pharmacies with a stronger presence on both coasts of the U.S. market. Leaders of both companies said the deal will help attract pharmacy customers who tend to spend more at Albertsons grocery stores.
That comes as the grocer starts to strengthen same-day deliveries, a meal-kit business and other products that cater to customers who want fast service.
Retailers have been pushing home deliveries and other customer-friendly services in the wake of expanded competition from Amazon. The online giant bought the grocer Whole Foods last year and plans to roll out a two-hour delivery service this year to customers who pay for its $99-a-year Prime membership.
Amazon's competitors also are bulking up health care services, which cannot be purchased online. Late last year, Rite Aid rival CVS Health Corp. said it would buy the health insurer Aetna for $69 billion. That deal could turn many of the chain's 9,800 stores into one-stop-shop locations for an array of health care needs like blood work and eye or hearing care in addition to their traditional role of filling prescriptions.
In Rite Aid, Albertsons Companies is buying a chain that has already remodeled more than half of its stores into a format that includes expanded pharmacy services and more health products. Like its drugstore chain competition, Rite Aid also operates walk-in clinics that can deal with cases of the flu, sinus infections and other relatively minor complaints.
It also has a pharmacy benefit management business that runs prescription drug coverage.
Albertsons said it will continue to run Rite Aid stand-alone stores, and most of the grocery operator's pharmacies will be rebranded as Rite Aid. Albertsons also runs Jewel-Osco, Shaw's, Vons and Acme stores.
The deal will create a company with "a large scale and diversified revenue base necessary to compete in today's highly competitive food and drug retail environment," Moody's Vice President Mickey Chadha said in a statement.
Rite Aid has struggled with high debt levels and tough competition from larger rivals, as narrowing drugstore networks have pushed customers away from its stores.
The nation's largest drugstore chain, Walgreens, tried unsuccessfully to buy all of Rite Aid last year but scuttled that deal after encountering regulatory resistance. Last September, Walgreens Boots Alliance Inc. announced a slimmer agreement to buy nearly 2,000 Rite Aid locations and some distribution centers for about $4.38 billion.
For the remaining Rite Aid stores, Albertsons Companies is offering either a share of its stock and $1.83 in cash or slightly more than a share for every 10 shares of Rite Aid. The grocer did not disclose a deal value. But it said the combined company would bring in about $83 billion in annual revenue.
That would rank it just below the Blue Cross-Blue Shield insurer Anthem Inc., which is 29th on the latest Fortune 500 list of largest companies
The companies expect their combined entity to trade on the New York Stock Exchange. Shareholders of Boise, Idaho-based Albertsons, which is currently private held, will own more than 70 percent of the combined company.
The companies say the deal should close in the second half of this year, but regulators and Rite Aid shareholders still have to approve it.
Rite Aid Chairman and CEO John Standley will lead the combined company as CEO, while Albertsons leader Bob Miller will serve as chairman. The companies say they will keep headquarters in both Boise and Camp Hill, Pennsylvania, which is where Rite Aid is based.
Shares of Rite Aid Corp., which have shed more than half their value over the past year, climbed more than 4 percent in midday trading Tuesday. Broader indexes were mixed.