Earlier this week, The New York Post reported that Walgreens Boot Alliance Inc (NASDAQ:WBA) is considering providing the Federal Trade Commission with a certified compliance notice that effectively puts the government agency on the clock forcing them to render a merger decision within 30 days between itself and Rite Aid Corporation (NYSE:RAD).
The odds of Walgreens completing its purchase of Rite Aid depends on who you listen to.
Some people believe that the FTC has taken more than a year to come to a decision because, like the nixed Staples, Inc. (NASDAQ:SPLS) merger with Office Depot Inc (NASDAQ:ODP), they’re not very keen about rubber stamping this kind of corporate concentration.
Is Rite Aid Stock a Buy?
As a result, M&A arbitragers have been given a rare opportunity to make some serious coin from a yes vote — RAD stock closed Mar. 9 trading at $4.66, well below Walgreens’ Jan. 30 revised offer of $6.50 to $7.00 per share — but they will also lose their shirts should the FTC say no to the deal.
InvestorPlace contributor Ian Bezek recently discussed in detail the pros and cons of owning Rite Aid stock given the uncertainty of a deal. Interestingly, Bezek owns WBA stock but not RAD stock, which suggests he’s not at all confident that the merger will get the greenlight.
Speaking of greenlight, David Einhorn’s hedge fund is a big owner of Rite Aid stock, holding 20 million shares of the drug store chain and looking to win big from a yes vote.
However, investors need to keep in mind two things about Einhorn’s play. First, he can afford to lose $40 to $50 million should the deal not get approved and RAD stock craters; secondly, he also has a big stake in Fred’s, Inc. (NASDAQ:FRED) who are still up for buying 865 Rite Aid stores (not as sure thing) as part of Walgreens’ efforts to comply with the FTC.
According to Evercore ISI analyst Ross Muken, “The one remaining uncertainty is who buys the incremental boxes as it is not clear to us that FRED has the financing capacity to do so.”
If a deal doesn’t get done, FRED stock could actually go up because it isn’t exactly lighting it up at the moment. So, Einhorn could still breakeven on his dual-stock bet despite a no approval from the FTC.