Rite Aid Corporation (NYSE:RAD) got a pop on Wednesday, September 11, to a new high of $3.75 as CNBC’s Halftime Report analyst suggested an eventual takeover in Rite Aid Corporation (NYSE:RAD)’s future . This rumor has been whispered before; investors must wonder if it is likely, and if an acquisition is needed to create larger gains for Rite Aid.
Will it be acquired?
Since Rite Aid Corporation (NYSE:RAD) turned profitable late last year, and began to see increased same-store sales , investors and analysts alike have entertained the idea of a potential Walgreen Company (NYSE:WAG) or CVS Caremark Corporation (NYSE:CVS) takeover. Strategically, it makes sense.
Because of the fact that new generic introductions are boosting margins for pharmacies at a rapid rate – generic drugs have higher payouts to pharmacies – it seems more likely that one of the large pharmacies would take a serious look at Rite Aid, now more than ever. Moreover, the rate at which new generic drug introductions are expected to increase over the next three years makes this interest even more appealing. But unfortunately, I don’t see it ever happening.
To explain, think back to AT&T Inc. (NYSE:T)’s attempted acquisition of T-Mobile. The Federal Communications Commission – or the government – blocked its proposal, finding that the merger would create an unfair advantage and negatively impact the competitive effect of the free market. Specifically, the FCC’s comment was, “the transaction would decrease competition, innovation and investment, and harm consumers .”
Of course, AT&T Inc. (NYSE:T) argued against the FCC’s response, but ultimately AT&T Inc. (NYSE:T) lost. For an industry comparison, there are much fewer telecom companies than small pharmacies in the U.S. CVS, Walgreen Company (NYSE:WAG), and then Rite Aid are the top three pharmacies, but it’s difficult to imagine a scenario where the government allows the merger of either CVS Caremark Corporation (NYSE:CVS) or Walgreen Company (NYSE:WAG) with Rite Aid due to the reasons noted in the AT&T/T-Mobile deal.
Hence, it is possible that we see a proposal of sorts and that rumors continue to build, but the likelihood of Rite Aid Corporation (NYSE:RAD) being acquired is slim to none.
Does an acquisition matter?
Thankfully, it really doesn’t matter for current investors if Rite Aid is acquired or not.
It’s no secret that Rite Aid Corporation (NYSE:RAD) has lower margins, a higher debt-to-assets ratio, and its growth is not nearly as impressive as either Walgreen or CVS Caremark Corporation (NYSE:CVS). In fact, Walgreen Company (NYSE:WAG) and CVS are both exploding with comparable-script growth , while Rite Aid’s script revenue is flat to slightly lower year over year.
