Rite Aid Shareholders Cheer Merger Failure, Call on CEO to 'Put House In Order'

 | Aug 09, 2018 | 5:57 PM EDT
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After the surprise failure of Rite Aid's (RAD) proposed merger with Albertsons Companies, the stock price for the drug-store chain dropped 11.5% to $1.54 per share in Thursday trading. Some of the happiest people about the failed deal are its shareholders.

Steve Krol, who owns 260,000 Rite Aid shares, was instrumental in making sure the deal fell apart. Now he is calling for the management to step down.

Disappointed in the prospects of the merger, he made a presentation to Institutional Shareholder Services and Glass Lewis, the two proxy advisory firms, to urge institutions to vote against the merger. Ultimately, the two firms were outspokenly against the merger, arguing the $24 billion deal offered too little premium for Rite Aid shareholders and merely combined two small companies facing stiff competition from larger chains.

"As you can see from the stock price today, Wall Street won't invest in this company unless the house is put in order, and you can't have credibility with Mr. Standley," Krol said.

John T. Standley has been CEO of Rite Aid since 2010.

Krol noted that this is the second failed merger of Standley's tenure as CEO counting Walgreen's Boots Alliance's (WBA) attempt to buy Rite Aid last year. Krol said that Standley has become too focused on selling the company rather than fixing its existing problems.

Barry Endelson, a corporate real estate agent from Westchester, N.Y. who owns more than 5,000 shares of Rite Aid echoed Krol's sentiments, telling Real Money he is happy the merger failed.

"I am worried about what will happen with Rite Aid, but if the merger went through I'd have to worry about what happened with Albertsons," Endelson said. "Rite Aid is a less complicated operation to fix."

In the wake of the deal being called off, Endelson said Rite Aid needs new executive management who will "bring some energy and creativity to bring Rite Aid into the present and the future."

Endelson prescribed simple solutions to Rite Aid's competitive shortcomings against CVS Health  (CVS) and Walgreens, suggesting the company become "more of a convenience store" and focus on customer service.

A change in leadership, as suggested by Krol and Endelson, could very well be in the works. In a press release detailing the deal, the company stated its intention to begin "evaluating governance changes at the company."

For reference, a Statista report shows that CVS and Walgreens control 23.8% and 15.6% of the U.S. prescription drug market, respectively. Meanwhile, even if the merger was completed, a combined Albertsons and Rite Aid would occupy just 5% of the market.

The company will hold its annual meeting of stockholders on Oct. 30, by which time more information should become available regarding any shifts in management.

-- Kevin Curran co-wrote this article.

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