Replies to post #8225 on Rite Aid Corp (RADCQ)

[etzetrade]

What do you mean? Is the deal covering new shares and cash together about $4.00. Thanks

[Prudent Capitalist]

The market is currently valuing RAD correctly based on the deal, i.e. slightly below what RAD holders can expect to net from the deal, which is around $2.38 as outlined in detail this am:

RAD shareholders would get approximately $2.38 per share of RAD

Here’s the math based on the article from Businesswire - www.businesswire.com/news/home/20180220005785/en/

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.

Until deals are completed the market usually discounts the valuation about 5%, so we take $0.125 off of $2.499 and get $2.374

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 www.nasdaq.com/markets/ipos/company/albertsons-companies-inc-970028-78908. That equates to approximately $30.25 per share back then.

They pulled the IPO based on falling financials. A present valuation of $23.16 for Albertson’s represents an approximately 23% slippage in share price since 2015. As we know the grocery store landscape is shifting quickly, so a $23.16 valuation of Albertsons at present would seem realistic.