Rite Aid investors, already angry at the company's executive team, primarily CEO John Standley, for attempting to merge the company with Albertsons, have significantly increased efforts to drive Standley and other executives from the company. A review of the Rite Aid and Albertsons saga can be found here.
Primary among the efforts of removing Rite Aid leadership is a group of shareholders that control 33,247,675 shares of stock and who recently launched a website called, "Right Rite Aid—Operation Transformation." It states:
After years of underwhelming performance and two failed merger attempts, it is time for new leadership at Rite Aid. This site will be a place to document the supporting facts and opinions regarding replacing the current executive team.
It is time to rescue Rite Aid from its ineffective leaders and transform the business with a renewed focus on growth and profitability.
I have also received copies of emails from investors that have been sent to Rite Aid's leadership expressing their frustration at the lack of communication from Rite Aid's senior leaders. It is clear from the emails I reviewed that Rite Aid's executive team and board of directors has thus far failed to come up with a strategy to pursue since the merger with Albertsons was called off.
To make matters worse for Rite Aid, the United Food and Commercial Workers Union (UFCW) launched a boycott of Rite Aid stores in Southern California, one of Rite Aid's largest markets.
I submitted a request to interview John Standley, CEO of Rite Aid. Standley declined to be interviewed for this article.
I See Bad Times Today
At its core, the overwhelming challenge facing Rite Aid is that it is in 4th place behind bigger and better retail pharmacy chains: CVS Corporation, Walgreens, and Walmart. Simply put, Rite Aid is a small fish swimming alone in a big ocean.
The question that remains to be answered is who would want to buy Rite Aid? Anyone? With more than $3 billion in debt, even PE firms have voiced concern about acquiring Rite Aid. Rite Aid's EnvisionRx pharmacy benefits management (PBM) business, however, has been mentioned by many analysts as having significant value to the right buyer.
What about a go-it-alone strategy? Institutional Shareholder Services (ISS) stated during its review of the Rite Aid/Albertsons merger that Rite Aid "faces significant risks as a stand-alone company." However, the firm also said that Rite Aid "appears to have reasonable prospects as a stand-alone business now that management no longer has to focus on the Walgreens Boots Alliance transaction and can instead allocate resources and attention to driving operational improvements."
In regards to the latter point, many analysts have major concerns whether or not Rite Aid's executive team and board of directors are capable of actually driving operational improvements. As one senior Wall Street analysts told me in confidence: "All I can envision is that Rite Aid's board and executive team will drive the company over a cliff once and for all." When I asked the individual if they were being too harsh, they replied "No, I am being too lenient." Ouch! I hear the voice of rage and ruin to quote Credence Clearwater Revival.
I See Trouble On The Way
Based on my review of Rite Aid over the last 24 months, and based on discussions I've had with individuals intimately familiar with everything taking place inside the company and among shareholders, all I can state is that there is a storm coming and it's going to be bad. I've made my feelings known about Rite Aid in a series of articles that can be found here and here.
Below I present the Right Rite Aid survey and overview.
Right Rite Aid Survey Overview
- Option 1. Hire a new effective replacement top-tier investment bank to package the company for sale.
- Option 2. Approach Walgreens Boots Alliance, Inc. a second time to buy the remainder of Rite Aid for cash or stock with the understanding that anti-trust regulators now empathize with “survivability” issues within the industry. If AT&T and Time Warner can merge then so can we. If T-Mobile and Sprint can merge, then so can we. Those two mergers are far more monopolistic.
- Option 3. Initiate a tax-free spinoff of EnvisionRx to existing Rite Aid shareholders allowing for a NYSE listing and assuming a part of Rite Aid’s outstanding corporate debt.
- Option 4. Sell EnvisionRx with the assumption of part of Rite Aid’s outstanding corporate debt.
- Option 5. Sell majority stake in EnvisionRx, with Rite Aid would maintain a minority interest in the business.
- Option 6. Pay a one time “Special Dividend” with the remaining proceeds due from Walgreens Boots Alliance, Inc., yet no less than $0.50 per share.
- Option 7. "Right Rite Aid" by replacing leadership prior to pursuing any potential sale of the company.
Based on my experience providing consulting services to companies in a situation similar to Rite Aid, the option I believe that should be prioritized is Option 7, replacing leadership prior to pursuing a sale of the company. However, I would rewrite the option to read: Hire new leadership, replace the board of directors, and contract a management consulting firm to conduct a strategic review of options for Rite Aid. A sale of the company should not be identified as being the only possible option for the company.
Option 2 is worth exploring although I'm not convinced Walgreens Boots Alliance is interested in acquiring more Rite Aid stores.
I would also add an additional option: Approach Kroger and ascertain its interest or lack thereof in acquiring Rite Aid.
Truth be told, a better option for Kroger to pursue than acquiring Rite Aid would be to sell its pharmacy business to Walgreens and create a program whereby Kroger customers could order groceries online and pick up the groceries from a Walgreens of their choosing. I recommended this same strategy to Kroger when I worked for the company as a consultant.
(Note: I have not and will not take the survey.)
I Know The End Is Coming Soon
The options presented above by Right Rite Aid are, of course, one view. I will not hazard a guess as to what strategy, if any, Rite Aid's executive team will pursue. All I know what's certain is this: Rite Aid has much more potential than shareholders, analysts and company executives realize. The worst thing that can happen to Rite Aid is for the status quo to be maintained.
Can Rite Aid be saved? Can Rite Aid thrive? The answer is yes to both questions under certain circumstances.
Will Rite Aid survive? Without a change in leadership, without a much more competent and qualified board of directors overseeing the company, the end is indeed near for Rite Aid.
