The worst could be waiting for Rite Aid shareholders
Hill said that Rite Aid’s stock price could fall as much as 53% to $2.25 per share if the two companies fail to get FTC (Federal Trade Commission) approval for the merger and the Fred’s (FRED) acquisition of the divested stores.
Rite Aid stock tumbled 4.9% to $4.48 on March 21, 2017, touching its lowest level since October 2015. The company has fallen 46% YTD (year-to-date).
Walgreens could also suffer
Walgreens shares will likely also face a downside if the deal doesn’t go through. They could fall up to 14%. Walgreen stock, which is currently trading at $83.21, could fall to the $73–$79 range if the deal fails to please regulatory authorities. Hill, however, has maintained a “buy” rating and a price target of $92 on Walgreens.
Walgreens, which announced its acquisition of Rite Aid in October 2015, is reported to be working toward a new deal, which would involve selling a greater number of Rite Aid stores to Fred’s. Walgreens also reduced its takeover bid from $9 per share to $6.50–$7.00 per share in January 2017. The Walgreens-Rite Aid deal has been awaiting FTC approval for the last year and a half.
Walgreens stock fell 1.7% yesterday. The company has risen 0.5% YTD. Fred’s fell 6.3% and closed at $13.74 yesterday. The retailer agreed to buy 865 Rite Aid stores in December 2016.
ETF investors seeking to add exposure to Walgreens, Rite Aid, and Fred’s can consider the SPDR S&P Retail ETF (XRT). XRT invests ~3% of its portfolio in these three companies.