Rite Aid — Merger or Acquisition (July 2018)
37 slides from Rite Aid's merger presentation, Jul 17, 2018
Slide 1: Forward-Looking Statements
Forward-Looking Statements 2 Important Notice Regarding Forward-Looking Statements This communication contains certain “forward-looking statements” within the meaning of the Securities Act of 1933 and the Securities Exchange Act of 1934, both as amended by the Private Securities Litigation Reform Ac
Slide 2: Additional Disclosures
Additional Disclosures 3 Additional Information and Where to Find It In connection with the proposed merger involving Rite Aid and Albertsons, Rite Aid and Albertsons have prepared a registration statement on Form S-4 that included a proxy statement/prospectus. The definitive proxy statement/prospec
Slide 3: Additional Disclosures
ADDITIONAL DISCLOSURES [Additional Information and Where to Find It Inconnection with the proposed merger involving ite Aid and Albertsons, Rite Aid and Albertsons have prepared a registration statement on Form S-8 that included proxy statement/prospectu. The definitive prox statement/ prospectus wa
Slide 4: Merger is the Right Combination at the Right Time
Merger is The Right Combination At the Right Time 5 Includes expected full run-rate cost synergies of $375mm that Rite Aid and Albertsons believe can be realized by the end of February 2022, with an associated one-time cost of $400mm. Note this does not include revenue opportunities. 29.6% if all sh
Slide 5: Most Attractive Option in the Range of Alternatives Considered
Most attractive option IN the Range of alternatives considered 6 Considered unsolicited offers for EnvisionRxOptions, which were deemed to not be in the best interest of the company or shareholders EnvisionRxOptions is a critical asset in advancing strategy to deliver cost effective solutions to pay
Slide 6: Merger Tracks with Evolving Healthcare Strategies
Merger tracks with EVOLVING HEALTHCARE strategies Engage with patients in low cost settings Integrate pharmacy into healthcare ecosystem Leverage scale through horizontal acquisitions Converge with retail Drive customers to stores, focus on overlapping populations and develop value-added services in
Slide 7: Merger Accelerates Rite Aid's Strategic and Financial Transformation
MERGER Accelerates rite aid’s strategic and financial transformation 8 Increased Geographic Presence New Levers for Growth Solidifies Financial Strength 1 2 3 The #3 drug store player with ~2,530 counters(1) to the leader in Food, Health & Wellness with 4,310 counters Creates compelling value for ou
Slide 8: Reimbursement Rate Pressure is Impacting EBITDA
Reimbursement Rate Pressure is impacting EBITDA 9 Reimbursement rates have consistently declined, increasingly impacting Rite Aid’s EBITDA Continued consolidation among payors EBITDA decline has accelerated as fewer options remain to offset reimbursement rate pressure Fewer brand drugs going generic
Slide 9: Transaction Follows Multiple Strategic Actions in Evolving Market
10/27/15: WBA announces acquisition of RAD Transaction Follows multiple strategic actions in evolving market 10 2/20/18: ACI/RAD merger announced 12/3/17: CVS Health announces acquisition of Aetna 3/8/18: Cigna announces acquisition of Express Scripts 3/28/18: HSR expiration for ACI merger 6/28/18:
Slide 10: Significant Value Upside for Rite Aid Shareholders
Significant value upside for rite aid shareholders 11 Synergies Provide Significant Value Upside to Rite Aid Shareholders Source: Public filings. Pre announcement equity value based on February 16, 2018 stock price of $2.13 and 1.1bn fully diluted shares outstanding. Based on Kroger FV / FY Feb. 201
Slide 11: Compelling Strategic Rationale
Compelling strategic RATIONALE 12
Slide 12: Creating a Leader in Food, Health and Wellness
13 Creating a leader in food, health and wellness Note: Financial figures add together LTM statistics for Rite Aid and Albertsons Companies per respective latest Q4, other than share in MSA which is an Albertsons figure, and lives under management (Includes Envision Rx Options). (1) On June 27, 2018
Slide 13: Rite Aid's Financial Profile is Transformed
$ billions (Continuing Operations) Revenue(1) $22 $83 Adj. EBITDA(1) % margin $0.6 3.0% $3.3 / $3.7 4.1% / 4.5% Net Debt / Adj. EBITDA(2) 4.8x(3) 4.1x / 3.8x(4) With the Albertsons merger, rite aid’s financial profile is transformed Excl. / Incl. Cost Synergies(5) ~4x larger ~6x larger Higher margin
Slide 14: Rite Aid's Strategic Position Dramatically Enhanced
rite aid’s STRATEGIC POSITION dramatically enhanced 15 Pro Forma LTM Revenue ($ billions) Creating a Top Five Food & Drug Retailer Pharmacy Counters Nationwide(1) 4,640 9,760(2) 9,430(3) 2,270 4,310 1,700(4) ~2,530 Rite Aid data as of June 2, 2018. Data for other companies based on most recent 10-K
Slide 15: Building Competitive Advantage Through Pharmacy and Grocery
4,310 2,270 9,760(3) 9,430(4) 4,640 Building competitive advantage through combination of pharmacy & grocery 16 Standalone Pharmacies Fresh(1) PBM Drive Up & Go & Grocery Delivery Meal Kits in-store and online subscription Loyalty Program Pharmacy Counters Nationwide(2) Includes produce, meat, seafo
Slide 16: Merger Strengthens Rite Aid's Position in Attractive Local Markets
Note: Rite Aid information is pro forma for its store divestitures to WBA. The sale of all 1,932 stores under the asset purchase agreement with WBA was completed in March 2018; the transfer of three remaining distribution centers and related inventory is expected to begin after September 1, 2018. Fo
Slide 17: Southern California Market Illustrates Expanding Convenience
Southern California market illustrates expanding convenience in our most attractive markets 18
Slide 18: Combination Strengthens Pharmacy Presence in Important States
Combination Strengthens our pharmacy Presence in important states 19 Share based on number of pharmacy counters in a given state. Includes all Philadelphia area CBSAs. State Pharmacy counters Counter Share(1) Total Pharmacy Counters Counter Share(1) Rank CA 569 10.4% 945 17.3% #2 PA(2) 614 19.6% 676
Slide 19: Substantial Estimated Cost Synergies
($ millions) Branded Product COGS Savings Own Brand Penetration & COGS Savings Pharmacy Purchasing & Operational Efficiencies Marketing & Advertising, Insurance, Utilities, Other Corporate & Regional Functions Supply Chain & Manufacturing 20 $375mm Run-Rate Cost Synergies(1) (1) Run-rate cost synerg
Slide 20: Additional Opportunities to Drive Traffic and Growth
Additional opportunities to drive traffic and growth 21 Incremental Revenue Opportunities of $3.6 Billion(1) Approach payors and PBMs to create preferred network leveraging numerous convenient locations across multiple states Narrow Networks Increase traffic and basket size by rebranding certain pha
Slide 21: Focusing on Relationships with Our Most Valuable Customers
Focusing on relationships with our most valuable customers 22 Spend per transaction >3.5x Higher total spend per week >2.5x Higher grocery spend per week (1) Based on Albertsons customer data for FY’17 Q3. (2) Does not include Front End or EnvisionRx sales. Albertsons Rx Customers Spend Significantl
Slide 22: Rite Aid Shareholders Benefit from Albertsons' Financial Momentum
Rite aid Shareholders benefit from Albertsons’ Financial Momentum FY 2017 – FY 2018E Adj. EBITDA Bridge(2) ($ millions) Albertsons’ last two quarters demonstrated strong sales and EBITDA performance Positive identical store sales of 0.6% in Q4-FY17 and 0.2% in Q1-FY18(3) Adj. EBITDA up $25mm year-ov
Slide 23: Equity Analysts Highlight Merits of the Transaction
Equity analysts Highlight merits of the transaction 24 Strongest Strategic Option “...we view the deal as preferable for Rite Aid shareholders relative to the company pursuing a stand-alone strategy.” - J.P. Morgan, Feb 21, 2018 “We believe there is a low likelihood that others step in with a compet
Slide 24: Equity Analysts Highlight Merits of the Transaction
EQUITY ANALYSTS HIGHLIGHT MERITS OF THE TRANSACTION Enhanced Competitive Position Strongest Strategic Option “We also think that the omni- channel platform makes the business more defensible against the potential threat of AMZN and retailers offering delvery services.” Cowen, May 15, 2018 “CVS and W
Slide 25: Board Followed Thorough Process
board Followed Thorough Process 26 (1) Note: No additional offers received to date. Robust Exploration of Strategic Options with Multiple Parties Extensive Due Diligence on Albertsons Detailed Vetting of Cost and Revenue Synergy Projections Process Conducted with Thoughtfulness Under Guidance of Ful
Slide 26: Transaction Grew Out of Diligent Process
Transaction grew out of diligent process Strong Process and Diligent Execution Multiple Alternatives Reviewed Public and Transparent Board of Directors met regularly to evaluate strategic alternatives between 2014 through 2018 Negotiating committee excluded Rite Aid Chairman and CEO, and process man
Slide 27: Support This Value Enhancing Transaction
Support this value enhancing transaction 28 Includes expected full run-rate cost synergies of $375mm that Rite Aid and Albertsons believe can be realized by the end of February 2022, with an associated one-time cost of $400mm. Note this does not include revenue opportunities. 29.6% if all shareholde
Slide 28: Support This Value Enhancing Transaction
SUPPORT THIS VALUE ENHANCING TRANSACTION + Accelerates Rite Aid's transformation and improves its ability to compete in a consolidating and evolving marketplace Enhan¢ ~ Increased scale and density, with an expected $83 billion insales, improved Competitive Position Adjusted EBITDA of $3.7 billion!)
Slide 29: Key Transaction Terms
Key transaction terms Consideration For every 10 Rite Aid shares, Rite Aid shareholders will receive either (i) 1 share of Albertsons plus $1.832 in cash, without interest or (ii) 1.079 shares of Albertsons If all Rite Aid shareholders elect to receive shares plus cash, former Rite Aid shareholders
Slide 30: Thoughtful Merger Agreement Mitigates Shareholder Risk
Thoughtful merger agreement mitigates shareholder risk 31 Strong SHAREHOLDER PROTECTIONS IN PLACE Merger includes standstill agreement with Albertsons’ largest shareholder, capping ownership at 30% of combined company Provisions prohibiting most significant current Albertsons shareholders from votin
Slide 31: Roadmap to Completion
Roadmap to completion 32 Hart-Scott-Rodino (HSR) expired March 29, 2018 Filed definitive proxy statement on June 25, 2018 Receive regulatory approval from the Ohio Department of Insurance Obtain shareholder approval on August 9, 2018 Expected to close transaction in second half of 2018
Slide 32: Albertsons Q1'18 Results
Albertsons Q1’18 RESULTS 33 Actual Actual ($ in millions) 16 Weeks 16-Jun-18 16 Weeks 17-June-17 Variance Sales $18,653 $18,460 1.0% ID Sales % 0.2% (2.1%) 2.3% Gross Profit $5,171 $5,059 2.2% Gross Margin % 27.7% 27.4% 30bps Excluding Fuel 60 bps Adjusted EBITDA $816 $772 $44 Margin % 4.4% 4.2% 20
Slide 33: Albertsons' FY'18 Outlook
Albertsons’ Fy’18 outlook ($ in millions) 34 Source: Management estimates. (1) Based on FY 2018E Albertsons management outlook as reported in Albertsons’ Form 8-K filed with the SEC on July 16, 2018. (2) Represents estimates for FY’19E ending February 2019. (3) Includes offset of union contract, min
Slide 34: Rite Aid – Reconciliation of Net Loss to Adjusted EBITDA
Rite Aid – Reconciliation of net loss to adjusted ebitda (FY ending February 2019 guidance) Source: Rite Aid's Form 8-K dated June 27, 2018. 35 FYE February 2019 Guidance Range ($ in millions) Low High Net loss ($95) ($40) Adjustments: Interest expense 210 210 Income tax benefit (15) (10) Depreciati
Slide 35: Albertsons – Reconciliation of Net Income to Adjusted EBITDA
Albertsons – Reconciliation of net income to adjusted ebitda Source: Albertsons earnings release dated July 16, 2018 and Form 10K dated May 11, 2018. Related to activities to integrate acquired businesses, primarily the Safeway acquisition. Includes expenses related to acquisition and financing acti
Slide 36: Albertsons – Reconciliation of Operating Income to Adjusted EBITDA
Albertsons – Reconciliation of operating income to adjusted ebitda (FY ending February 2019 guidance) Source: Albertsons Form 8-K dated July 16, 2018. Primarily includes forecasted costs related to integration of acquired businesses, acquisitions and amortization of management fees paid. Primarily i
Slide 37: Albertsons – Reconciliation of Operating Income to Adjusted EBITDA
ALBERTSONS — RECONCILIATION OF OPERATING INCOME TO ADJUSTED EBITDA (FY ENDING FEBRUARY 2019 GUIDANCE) (Sin millions) Operating income ‘Adjustments: Depreciation and amortization ‘Acquisition and integration costs Equity-based compensation expense Other adjustments? ‘Adjusted EBITDA FYE February 2019