Author Topic: RAD - Rite Aid Corporation  (Read 8612 times)

Zorrofan

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RAD - Rite Aid Corporation
« on: May 24, 2017, 09:39:34 AM »
I'm not sure if I should call this an "arb opportunity" or a "lottery ticket".   Walgreens certified compliance on May 8th and the FTC has 60 days (less now) to respond.

It seems to me that there are three possible outcomes:

1. FTC approves the takeover, with RAD being bought for between $6.50 and $7.00 depending on the number of stores the FTC wants divested. Assume a $6.50 takeover price, buying today at $3.65 yields a 71% return in less than 60 days.

2. FTC does not allow the takeover. RAD falls, likely quite a lot, and some private equity firm steps in. RAD has value even without the takeover and in the right hands it should be worth more than $3.65 it trades at today

3. Takeover does not go through, company flounders and goes bankrupt, with the shares going to zero.

This seems high risk, high reward. Thoughts anyone?   
Full disclosure - I nibbled today

cheers
Zorro


winjitsu

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Re: RAD - Rite Aid Corporation
« Reply #1 on: May 24, 2017, 11:06:45 AM »
I'm not sure if I should call this an "arb opportunity" or a "lottery ticket".   Walgreens certified compliance on May 8th and the FTC has 60 days (less now) to respond.

It seems to me that there are three possible outcomes:

1. FTC approves the takeover, with RAD being bought for between $6.50 and $7.00 depending on the number of stores the FTC wants divested. Assume a $6.50 takeover price, buying today at $3.65 yields a 71% return in less than 60 days.

2. FTC does not allow the takeover. RAD falls, likely quite a lot, and some private equity firm steps in. RAD has value even without the takeover and in the right hands it should be worth more than $3.65 it trades at today

3. Takeover does not go through, company flounders and goes bankrupt, with the shares going to zero.

This seems high risk, high reward. Thoughts anyone?   
Full disclosure - I nibbled today

cheers
Zorro

Doesn't this trade just scream for an options play? Your outcome is pretty much binary

mttddd

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Re: RAD - Rite Aid Corporation
« Reply #2 on: June 26, 2017, 08:00:19 AM »
Anyone playing this? Iv been considering buying some call options, I get the impression that the FTC doesnt want to allow the merger but it seems like they are struggling to justify it. I doubt they vote 2-0 to allow it but i could see a split decision meaning it goes through.

Iv got some cash sitting around in my speculation account and might throw a small amount into this

orthopa

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Re: RAD - Rite Aid Corporation
« Reply #3 on: June 26, 2017, 09:54:59 AM »
Have been watching. The 7/7 weeklys would be the way to go. implied volatility very high though. $$$

fareastwarriors

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Re: RAD - Rite Aid Corporation
« Reply #4 on: June 29, 2017, 08:57:10 AM »

Uccmal

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Re: RAD - Rite Aid Corporation
« Reply #5 on: June 29, 2017, 09:46:38 AM »
Rite Aid has been like the hot potato of the retail drug store industry. 

They nearly sunk Jean Coutu when JC's son decided he wanted to expand into the US.  Dad jad to come back as CEO and unwind the mess that was created.  I was a PJC shareholder at the time.  I finally gave up.  It took hears after that for PJC to get their geoove back. 

Seems Walgreens gets the business without getting the business, so to speak. 
GARP tending toward value

valuedontlie

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Re: RAD - Rite Aid Corporation
« Reply #6 on: June 29, 2017, 10:07:27 AM »
At $2.80/share this looks sort of interesting...

Market cap $2.95bn and pro-forma net debt of $2.2bn ($7.1bn current less $4.6bn net proceeds from sale less $325m term fee) = $5.15bn EV

They said net leverage will be cut in half so 3.4x or $645m approx EBITDA. Looks like they're selling stores to WBA at >12x EBITDA and will be trading at ~8x themselves.

Free cash flow should improve significantly if they use most/all proceeds to pay down debt. They have $3.5bn in expensive debt that would save $246m annually alone (before taxes).

Business still struggling mightily. Comps down 3.9% in Q1.

JayGatsby

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Re: RAD - Rite Aid Corporation
« Reply #7 on: June 29, 2017, 10:24:15 AM »
At $2.80/share this looks sort of interesting...

Market cap $2.95bn and pro-forma net debt of $2.2bn ($7.1bn current less $4.6bn net proceeds from sale less $325m term fee) = $5.15bn EV

Where are you getting the $4.6B? My read is that they're selling the stores for $5.175 and collecting the $325 term fee (so $5.5B total), but I haven't dug in deeply. Given prior NOLs, I was assuming taxes on the transaction would be minimal.

valuedontlie

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Re: RAD - Rite Aid Corporation
« Reply #8 on: June 29, 2017, 10:26:02 AM »
At $2.80/share this looks sort of interesting...

Market cap $2.95bn and pro-forma net debt of $2.2bn ($7.1bn current less $4.6bn net proceeds from sale less $325m term fee) = $5.15bn EV

Where are you getting the $4.6B? My read is that they're selling the stores for $5.175 and collecting the $325 term fee (so $5.5B total), but I haven't dug in deeply. Given prior NOLs, I was assuming taxes on the transaction would be minimal.

On today's call they guided to $525-625m in payments for A/P, transaction costs, and taxes -- net proceeds from the sale of $4.5-4.7bn.

JayGatsby

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Re: RAD - Rite Aid Corporation
« Reply #9 on: June 29, 2017, 10:38:56 AM »
On today's call they guided to $525-625m in payments for A/P, transaction costs, and taxes -- net proceeds from the sale of $4.5-4.7bn.
Got it, thanks.