Rite Aid Corporation RAD and Walgreens Boots Alliance, Inc. WBA have jointly agreed to postpone the deadline for the mega-merger to Jan 27, 2017, three months later than the planned deadline of Oct 27, 2016. The merger, which was due for the second half of calendar year 2016, is now expected to conclude in early 2017.

Market analysts speculated that the reason behind the delay is probably the pending federal regulatory approval. Analysts note that Walgreens is still to fulfill the regulators' requirement of divesting about 500–1,000 stores. Walgreens expects to finalize the deals for these store divestures by the end of 2016.

Yesterday, Rite Aid’s stock jumped nearly 6.8% following the announcement, while Walgreens gained nearly 5% given its robust earnings results.

The Background

As was agreed upon in Oct 2015, Walgreens will buy Rite Aid, the third-largest U.S. retail drugstore based on revenues and store size, for $9.00 per Rite Aid share in cash. Including debt, the enterprise value of the deal is about $17.2 billion.

This colossal takeover is expected to be accretive to Walgreens’ earnings per share within the first year of completion of the merger. Further, Walgreens anticipated synergies worth over $1 billion from the deal. The transaction has so far received various regulatory approvals as well as the nod from the board of directors of both companies.

Following the completion of the transaction, Rite Aid will operate as a wholly owned subsidiary of Walgreens. However, it will retain its existing brand name for now. Walgreens revealed that decisions regarding rebranding of the Rite Aid stores and the integration of the two companies will be taken over time, in order to achieve a harmonized portfolio of stores and infrastructure.  

The acquisition of Rite Aid would enable Walgreens to further deliver on its goals of offering a distinguished in-store experience for health, wellness and beauty, as both companies share the same vision on this front. The merger is also likely to create a drugstore behemoth with a superior network.  Further, it would help Walgreens to fulfill its promise of making quality healthcare accessible to more customers and patients.

The companies expect the merger to create a drugstore behemoth with a superior network that will cater to more health and wellness solutions both in stores and online. Further, this will intensify Walgreens’ competition with CVS Health Corp. CVS, the second-largest drugstore chain by store size and the largest one by revenue. It will also help Walgreens to bring cost synergies in prices of branded and generic drugs.

Further, the combined company formed from the Walgreens-Rite Aid merger will operate over 12,000 stores in the U.S. and fill over 1 billion prescription drugs every day.

As the merger nears its completion, we would like to see how this drugstore behemoth benefits the industry, consumers and shareholders, while helping retain Walgreens’ number one spot in the drugstore industry.

RITE AID CORP Price

RITE AID CORP Price | RITE AID CORP Quote

Zacks Rank

Currently, Rite Aid has a Zacks Rank #4 (Sell). A better-ranked stock in the retail sector is American Eagle Outfitters, Inc. AEO, carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

American Eagle Outfitters has a long-term earnings growth rate of 11.8%. The stock has gained roughly 13.4% in the past one year.

Confidential from Zacks

Beyond this Analyst Blog, would you like to see Zacks' best recommendations that are not available to the public? Our Executive VP, Steve Reitmeister, knows when key trades are about to be triggered and which of our experts has the hottest hand. Click to see them now>>

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
 
AMER EAGLE OUTF (AEO): Free Stock Analysis Report
 
RITE AID CORP (RAD): Free Stock Analysis Report
 
CVS HEALTH CORP (CVS): Free Stock Analysis Report
 
WALGREENS BAI (WBA): Free Stock Analysis Report
 
To read this article on Zacks.com click here.
 
Zacks Investment Research