Rite Aid Corp (RADCQ)

[illegal_alias]

What the market is saying about the deal:

So here is the math behind the deal in my post https://investorshub.advfn.com/boards/read_msg.aspx?message_id=138675885

In exchange for every 10 shares of Rite Aid common stock, Rite Aid shareholders will have the right to elect to receive either (i) one share of Albertsons Companies common stock plus approximately $1.83 in cash or (ii) 1.079 shares of Albertsons Companies stock.

Let’s dissect this statement; Option 1 gives us part the figures we need - 1 share of Albertson’s + $1.83 for every 10 shares of RAD. So divide this by 10 which is a 1/10th share of Albertson’s plus $0.183.

What is a share of Albertson’s worth? Under Option 2 you get 1.079 shares of Albertsons for every 10 share of RAD. So the $1.83 is worth 0.079 shares of Albertson’s. Divide $1.83 by 0.079 and you get a valuation of $23.16 per share of Albertsons. Remember the exchange is 10 for 1, so $23.16 becomes $2.316. Add the $0.183 to that number and you get $2.499.

Generally, when deals are announced they will trade close to, but under the valuation. A bit of a hedge and a 5%-10% discount is not unusual. That said, RAD should be trading at about $2.25- $2.38.

However, it appears that the market is not buying Albertson's valuation of $23.16 for it's shares.

If we take the current trading of RAD at $1.60 today and with a deal giving 1.079 shares of the new Albertson's for every 10 shares of RAD, we would take 1 share of RAD X 10 = $16. Divide $16 by 1.079 and that mean the market is currently valuing Albertsons at $14.83. That is a 36% discount!

When Albertson's initially proposed its IPO (from my same post cited above)

In 2015, Albertson’s considered an IPO at approximately $12.4 billion valuation https://www.pymnts.com/restaurant-technology/2017/albertsons-ipo-back-on-hold/ and at the time had an o/s of 409.8 million shares http://www.nasdaq.com/markets/ipos/company/albertsons-companies-inc-970028-78908. That equates to approximately $30.25 per share back then.

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The fall in Albertson's valuation from 2015 ($30.25/share) to Feb 2018 ($23.16/share) was a 23.5% drop. To say that Albertson's valuation has dropped another 36% in less than two month's leaves a person scratching their heads.

So that means either the market is not buying Albertson's valuation at the time of the deal, or not confident that the deal will go through.

Assuming the deal goes through (and so far no indicators that it will not) buying at $1.60 a good calculated risk.