Shares of U.S. drugstore chain Rite Aid Corporation (NYSE:RAD) have gotten crushed so far in 2017, falling some 41% compared to 5.66% increase in the S&P 500. And if you only bought and held RAD stock over the past 12 months, you’re down down almost 40% on your investment.
So, with the shares now at their lowest since October 2014, is now the right time to buy Rite Aid stock?
Walgreens announced its $17.2 billion deal for Rite Aid in late 2015. In February, Walgreens — which once offered as much as $9 per share for RAD stock — revised its buyout agreement, saying it would pay “a maximum of $7 per share and a minimum of $6.50 per share.”
Now Below the Minimum
RAD stock closed Tuesday at $4.87. Despite the 3% gain on Tuesday, the closing price is still 25% below Walgreens’ lowest range, driven by reports Walgreens might force the Federal Trade Commission to make a quick decision.
Last week, The New York Post, citing unidentified sources, reported Walgreens is getting impatient about the FTC’s slow decision-making process, stating that the company may soon “declare it has ‘certified compliance’ in its application.”
“Certified compliance” means Walgreens, which is pushing for a speedier review, has “given regulators substantially all the information they need to make a decision, according to the newspaper.” To appease jittery regulators who are afraid of Walgreens becoming too big,
Walgreens agreed last year to sell 865 Rite Aid stores to Fred’s, Inc. (NASDAQ:FRED) in a $950 million deal. Michael Bloom, Fred’s CEO, called the acquisition of stores a “transformative event for Fred’s Pharmacy that will accelerate” its healthcare growth strategy.
Bloom is not alone in pursuit of RAD’s assets. Reports suggest that additional suitors have emerged to buy other divested Rite Aid stores. That’s not a surprise, given that Walgreens promised to sell off as many as 1,200 Rite Aid locations “and certain related assets” to obtain regulatory approval.
Bottom Line for RAD Stock
As it stands, both companies have agreed to a set price of $7 per share if 1,000 stores or fewer are divested and a price of $6.50 per share if 1,200 stores are sold.
In other words, Walgreens’ ultimate cost for Rite Aid won’t be decided upon until the final number of store divestitures is known.
But given that Rite Aid’s fundamentals are still intact even as RAD stock falls, Walgreens is motivated to stick with this deal. Which means RAD stock investors should be patient.
As of this writing, Richard Saintvilus did not hold a position in any of the aforementioned securities.