Could Rite Aid be an acquisition target again?

Although Rite-Aid is a pharmacy, its primary driver of growth is the Pharmacy Benefit Management (PBM) business. Rite Aid stock dipped below pandemic lows at $4.68 as it posted a heartbreaking loss (-$1.63) per share Bullish investors believe COVID activity has given the company enough time to grow its pharma business

The stock of pharmacy operator Rite Aid Corporation (NYSE: RAD) is down (-38%) on the year, but rebounded more than 40% from its 4-year low, $68 in May. Pandemic gains are largely over for Rite-Aid, which went from earnings of $0.38 per share in the first fiscal quarter of 2022 to shares peaking at $32.48 in January 2021 thanks to the COVID vaccination. A year later, Rite Aid stock dipped below pandemic lows at $4.68 as it posted a heartbreaking loss (-$1.63) per share in the fourth quarter of fiscal 2022, literally doubling the loss estimates from consensus analysts. Much of this disaster can be attributed to the normalization of the company in addition to the restructuring expenses associated with its pharmacy business. The pharmaceutical services segment was the driving force behind CVS Health (NYSE: CVS) earnings, as it posted a 12% increase in the quarter. Rite Aid managed to cut losses to (-$0.60) per share in its fiscal 2023 first quarter to investors' relief and signaling a possible turnaround. Bullish investors believe the COVID activity has given the company ample time to grow its pharma business, which may be a popular acquisition target or at least a second-half turnaround story for the healthcare player.

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Elixir Growth Engine

While Rite-Aid is a pharmacy, its primary driver of growth is the Pharmacy Benefit Management (PBM) business. The company spun it into a wholly-owned subsidiary called Elixir that offers pharmacy benefit services, including Medicare-approved drug plans, prescription discounts, mail order, and specialty pharmacy solutions. The company has gone through a transformative reorganization as it attempts to strengthen its pharmacy business. That caused its estimated losses in the fourth quarter of fiscal 2021 to double, prompting Deutsche Bank to place a sell note with a $1 price target on the shares. As Elixir's intrinsic value increases, it becomes more attractive as an acquisition target. There is speculation that activist investors are pushing for a spin-off or the sale of Elixir to boost Rite Aid's stock.

Walgreens stalled merger in 2015

An acquisition attempt by Walgreens (NYSE: WBA) to buy Rite-Aid for $9 a share was blocked by regulators in 2015. After years of speculation, Walgreens ended up buying 1,932 Rite-Aid stores. Aid and three fulfillment centers for $4.4. billion.

Spear Point Capital Management tender offer

In April 2022, Spear Point Capital Management submitted a non-binding proposal to acquire Rite Aid for $815 million or $14.60 per share. On April 21, 2022, the board confirmed that it had rejected the non-binding off-market proposal as it doubted the credibility of the offer. They concluded: "In reaching its decision, the Board considered, among other flaws, that Spear Point's proposal provided no evidence of funding, required several months of exclusivity, and then directed Rite Aid to spend months In addition, Spear Point's proposal was conditioned on none of the company's debts becoming due upon a change of control, which contradicts the terms of nearly all of Rite Aid's debt obligations. Additionally, Spear Point has no history of acquiring public companies of the size and complexity of Ritual Aid."