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Analyzing the Synergies that Could Come from the Albertsons-Rite Aid Deal

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Discussing potential revenue opportunities

The proposed Albertsons-Rite Aid merger has several strategic and financial benefits, which we’ll discuss in this article. The merger could generate $3.6 billion in potential annual revenue opportunities. The combination of Albertsons’ grocery offerings and Rite Aid’s (RAD) pharmacy expertise will provide customers more shopping options. Albertsons is planning to offer a wide range of health and wellness services including specialty pharmacy and in-store RediClinics (Rite Aid’s clinics) in Albertsons’ stores as well as standalone Rite Aid stores.

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Also, Albertsons Companies is planning to rebrand its existing pharmacies (excluding Jewel Osco) as Rite Aid stores. It then intends to connect Rite Aid’s customer base to Albertsons’ customer base by integrating the loyalty programs. Rite Aid’s well-established brand and pharmacy capabilities will help drive new customers to its in-grocery pharmacies, while Albertsons’ grocery capabilities can help revive Rite Aid’s “front-of-store” retail sales by adding more compelling grocery options.

Partnerships are another way of boosting revenues. Albertsons is also thinking of partnering with EnvisionRxOptions, other PBMs, and regional payors in order to drive prescription growth.

Understanding the synergies

The merger is also expected to generate cost synergies of $375 million within the first three years after reaching closure. About 60% of these synergies could be realized within the first two years.

Most of the cost synergies are supposed to come from internal efficiencies and the development of a better network and would primarily be achieved by leveraging manufacturing capabilities, achieving supply chain and manufacturing optimization, procurement savings, and leveraging distribution efficiencies.

Investors looking for exposure in Rite Aid through ETFs can choose to invest in the First Trust Consumer Staples AlphaDEX Fund (FXG), which invests 2.8% of its portfolio in the company.

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